Everyone loses

By Chris Gillis
  
   The dismal financial results in the container shipping industry may have started with the liner carriers, but it certainly doesn’t stop there.
   Only two of the 15 carriers analyzed by American Shipper in this year’s “Who’s Making Money” were profitable in 2011. These carriers lost a collective $5.9 billion last year, just two years after they lost $11.3 billion in 2009. And the slide has continued with the top 20 carriers losing upwards of $2 billion in the first quarter of 2012.
   While some of the carriers like Maersk Line, with its abundant oil profits, and state-backed COSCO and China Shipping may be able to sweep their container-operating losses under the rug, others will not and risk increasingly frustrated investors walking away.
   Among this chaos, many savvy shippers may have found plenty of opportunity in their liner carrier service contracts this year to lower their freight rates. The carriers are obviously desperate for business, especially to fill new behemoth containerships coming on line in key east-west trades. 
   Yet shippers stand to lose on customer service and schedule reliability as the carriers slide toward what may essentially become a commoditized business. Think of how unpleasant it is to deal with your local utility, telephone or cable provider when there’s a problem to solve.
   Some shippers may attempt to drive more freight volumes through non-vessel-operating common carriers, as they did several years ago, to gain more efficient container shipping services. But even this isn’t a safe bet for shippers, as it’s looking like they will spend more for reliable NVO services. 
   For example, transpacific NVOs surveyed by American Shipper in May said the prevailing rates for a 40-foot container from base China ports to the U.S. West Coast are about $1,600 to $1,800 all-in for shippers, but $2,000 to $2,500 per 40-footer for NVOs. NVOs generally pay higher rates than shippers, but the split tends to be $100 or $200 higher, not $400 to $600. The NVOs in the transpacific characterized the carriers’ diligence in collecting higher rates from them as an attempt to wrest market share back from the non-asset operators.
   So what are shippers and NVOs to do? The best answer may be to hold on tight and set realistic ocean shipping goals in 2012. The financially unstable liner carriers will certainly ensure a bumpy ride for the entire industry.