Embracing shipping’s ?new normal?

Embracing shippingÆs ænew normalÆ       The global economy of 2009 spared no one in the shipping industry.
      Overtonnaging left the liner carriers floating mostly empty, scrambling to plug sinking profits with capacity cuts, general rate increases and headcount reductions. We may add that none of this was done very gracefully.
      Terminals, landside transport and even air cargo carriers suffered terribly as freight became increasingly difficult to come by. Shippers and third-party logistics services providers simply didn't have much need for carriers with consumer confidence in the tank.
      Investments in information technology and other ambitious innovations within the shipping industry lost much of their drive in 2009, meaning the industry has had to largely set aside its pursuit of efficiency.
   These dismal changes in global shipping, widely covered in the pages of American Shipper and other media outlets, are a far cry from the start of 2008 when the industry still believed freight volumes were destined to climb unabated. Yet, while the signs of recession were bearing down, many senior executives thought the impact would be minimal. Now, they know better.
      Today, economists and industry analysts are cautiously optimistic that the worst of this recession may finally be over and better times, although at a much slower pace than previous years, are on the way.
      A bit of positive news from the industry came on Nov. 4 when supply chain software firm JDA Software Group announced an agreement to acquire Dallas-based competitor i2 Technologies for about $396 million. This may be a sign that JDA will continue to consolidate the highly fragmented supply chain systems market, which should provide shippers with more complete offerings in the future (for related content, see the ITMS report executive summary on page 6). Others in this sector may follow, and having a collection of big IT players with portfolios of 'source-to-store' applications could serve to boost the shipping industry coming out of the recession.
      Warren Buffett, a well-known investor, announced the same week that his company Berkshire Hathaway will buy Burlington Northern Santa Fe Corp. for $100 per share in a deal valued at $44 billion including $10 billion in outstanding BNSF debt. He called the deal 'an all-in wager on the economic future of the United States.' He also knows that BNSF is one of the largest rail haulers of inbound containerized cargo arriving at the Southern California and Pacific Northwest ports.
      However, in the case of the wealthy Buffett, who commented during the announcement that 'I love these bets,' deals of this magnitude are still very much the exception. Buffett is banking on a return to higher fuel prices that will encourage more shippers to put their freight on the railroads, and has the money to wait for this to happen.
      As one freight forwarding executive put it more realistically to American Shipper, the industry is operating within a 'new normal,' meaning that it may never go back to the way it was before 2008.
      In addition, economic downturns forever remain a fact of life, and like war, there is no such thing as a recession to end all recessions. In 2010, we may experience a return to pain without continued government stimulus funding and a cash-for-clunkers campaign. There's also the strong possibility for a shakeout in the commercial real estate market.
      Going forward, this industry's executives should remember for a long time what led to the recession, what role their actions may have played in it, and pass these lessons learned along to the next generation to avoid another miserable repeat of history.