Think fast!

Think fast!       There used to be a time when the container shipping industry moved at a pace akin to polar glaciers.
      No longer. With capacity being managed at a moment's notice, there's a premium on quick thinking and dynamic strategic decisions.
      Here's an offbeat example of how things change: in late May, a major shipping line graciously sent me the transcript of a speech its chief executive gave in March. But the line cautioned that some of the comments might be out of date.
      Two months equals out of date? For the shipping industry? Things are indeed moving quickly these days. It's an indication of how desperate lines are to gauge the core aspects of their business ' demand and
supply.
      Last month, this column discussed whether restocking or recovery was behind the surge in demand in early 2010 ('Restocking or recovery?,' June American Shipper, page 44 or at www.AmericanShipper.com/links). Indeed, the thinking of many lines seems to be changing by the week on this score.
      Whereas earlier this year, most pinned the surge on a short-term restocking phase, the increase in capacity on major trades cannot simply be chalked up to a hope that restocking will
continue.
   Maritime news service Alphaliner reported in early June that weekly transpacific capacity had surged 17 percent since June, and not all of it is due to the reintroduction of services suspended during the low season.
      Whether they are buoyed by increased rates gained in spring negotiations, or legitimately convinced that demand has recovered, lines are putting their ships back into service.
      Alphaliner, in the same report, said idle capacity globally had shrunk to just 3.5 percent in June. That's hardly a headline-making number anymore.
      The cynical might say this is just a continuation of the industry's traditional pattern ' flood the market with capacity when things are good and then pull back on service when things go bad. But maybe what this suggests is that lines are becoming better at thinking and acting fast.
   There is, of course, a limit to how quickly a business relying on giant, slow-moving containerships can be managed. But carriers have been able to suspend or introduce new services in pretty short order in the last few quarters.
      Part of that can be attributed to a raft of new carrier partnerships that have developed the past two years. Lines are forging these new partnerships to complement their existing traditional alliances.
      But it can be surmised that these new partnerships allow for quicker reaction times than might be available in the longstanding alliances, where there are more established networks.
      Indeed, with carriers aggressively adopting better information technology systems, nuanced container-tracking products, and (more simply) relying on e-mails more than phone calls and faxes, you could even characterize them as progressive.
      How's that for a change?

Domestic bliss
      Somewhat lost amid the carnage seen in the international container-shipping industry in 2009 (see 'Who's making money,' pages 34-39) is news that the United States' two major domestic carriers both turned a profit.
      Yes, their profits tumbled by a considerable percentage, but the fact the two lines made money at all last year (as opposed to losing gobs of it) shows that the trades they cater to are more stable than those upon which the larger international carriers depend.
      Matson Navigation Co. saw its operating profits decrease 45 percent to $58.3 million, a drop Matson President Matthew Cox attributed mostly to an 11 percent volume drop to Hawaii and steep rate drops on the line's China service.
      Cox said volume on the China service fell marginally, but that rates fell much more precipitously. That shows Matson wasn't immune to the problems every other carrier on the transpacific faced.

'While international lines worried more about preserving market share, Matson could focus on its margins.'

      But Matson was apparently able to maintain profitability through effective cost-cutting and a fleet rationalization that drove utilization rates above 90 percent.
      'We curtailed capital spending to base maintenance levels, and we pursued other aggressive cost reductions throughout our operations to preserve operating margins,' Cox said.
      Matson benefits from a dominant position on the U.S. West Coast/Hawaii trade, something that ensures a certain level of business even during recession. But Cox's remark about preserving operating margins is a salient one. While international lines worried more about preserving market share, Matson could focus on its margins.
      The other major domestic carrier, Horizon Lines, also turned a decent profit, $18.8 million, in 2009. That was down nearly 50 percent on 2008.

Raymond

      But chief executive Chuck Raymond said the company was able to reduce its debt by $28 million during the year even as it recovered from an operating loss in the first quarter.
      'We also maintained stable revenue per container, net of fuel, and generated increased revenue from our logistics business,' Raymond said. 'We believe our market share held steady as we remained intensely focused on customer service, schedule integrity and cost management.'
      Horizon later this year will join Matson in offering an eastbound transpacific service on its backhaul from Asia.
      Yes, the Jones Act lines enjoy advantages that international lines don't, but they could have slunk to a loss in 2009 just as easily as many other businesses, and explained it away by saying that cargo demand was down everywhere. But they didn't, and for that, they should be commended.