Carriers and the Roman Empire

Carriers and the Roman Empire       'Huge oligopolies at the heart of the world economy were reluctant to cede market share to their rivals, preferring instead to cut costs and innovate.'
      I came across the above quote in January in an Indian business journal discussing how developed economies had dealt with gradually deteriorating economic performance over the past three decades.
      The man behind that theory is UCLA history professor Robert Brenner, who has posited that developed economies have increasingly relied on debt to stoke growth to overcome their inexorable deterioration.
      Now this is not an economics column and I am not an economist. But I couldn't help but be drawn to the above quote. How easily could that statement be attached to the liner carrier industry?
      Oligopolies? Check. Reluctance to cede market share? Check. Cost cutting? Check. It seems the same woes that have befallen the world's foundational economies are hurting the world's traditional liner carrier powers.
      Both have struggled to adjust to new dynamics. Developed economies haven't adjusted properly to the way businesses will unerringly seek lower costs, like water finds its way downstream. Nations still cling to industries to which their cost levels are no longer suited.
      Carriers, meanwhile, are notoriously slow to react to changing external factors. For example, how is it that paperless, voiceless bookings are not the overwhelming norm across the entire industry today?
      Both have floundered under the burden of overcapacity. For developed economies, Brenner argued that manufacturing overcapacity has been the root cause of the decline of developed economies. Japan started this phase of overcapacity in the mid-20th century, but now it's even come back to hurt the Japanese.
      For carriers, it's not just the well-publicized ship capacity glut that hurts, but also the way carriers overextended their networks and workforces in the boom times, only to cut back when things went south.
      And both have sought refuge in vast amounts of debt, only to find debt is not much of a panacea when the bills come due.
      There are, however, factors that favor the carrier industry being able to reinvent itself faster than the U.S. and European economies can. For one, they are far smaller, controlled by fewer voices and agendas, and thus more nimble, relative to the multitrillion-dollar U.S. economy.
      Second, many of the world's top lines are based in nations with emerging economies, and don't discount the role their growth may plan in a liner carrier recovery. For every line based in a developed economy like Denmark or Japan, there is one based in China or Chile. As the consuming habits of emerging economies grow, carriers will gradually wean themselves off their developed economy dependence.
      And while an excess of containership capacity will put off a resounding recovery for a few years, there's every chance that the long-term recovery of the carrier industry will be far more successful than the ultimately doomed developed economies.

Owning up to the problem
      Speaking of sea changes, NYK Line signaled early in January that it will navigate the next few years of overcapacity by decreasing its reliance on owned assets.
      In a New Year's address, NYK President Yasumi Kudo said the line would significantly slash its owned containership fleet by 2015 through scrapping or selling vessels.
      'I believe that emphasis should be placed on 'non-asset' operations for the time being, in the course of our efforts to augment liner trade business,' Kudo said. 'This by no means rules out owning of container vessels. Unless we possess such 'hard assets,' we lose our means of differentiating ourselves from our competitors by making the most of innovation and ingenuity,' before adding 'the deficits still remain enormous. If things go on like this, there will be no change in the prospect that it will become difficult to maintain our liner trade and air cargo transport business.'
      It was a bold proclamation, considering it came in the midst of what's considered a moderate recovery in volume and rates.
      Yet it's clear lines are still very worried about the next two years, when a spate of ordered vessels are due, including some deliveries delayed from 2009. Kudo's message cleverly dovetailed as a promotional salvo for the pending merger of NYK's logistics and forwarding subsidiaries this spring ' what better way to announce the combined strength of the two organizations than to say it will be a primary focus of the company's business?
      But one also has to wonder whether other lines will take such an extreme position. Indeed, the top three carriers ' European powers Maersk Line, Mediterranean Shipping Co. and CMA CGM ' are significantly increasing their owned fleets, as are virtually all of the world's top 20 lines. In fact, according to Alphaliner, only Evergreen (with no orders) has less capacity on order, relative to the size of its current fleet, than NYK.
      NYK increasingly finds itself in a top 20 middle class trailing the European big three. There are big differentiators among that middle class, including nationality, service levels and ship sizes. NYK has typically prided itself on high service levels, and focusing on its non-asset business could be an attempt to double down on that reputation while the capacity overhang is cleared.

Slow steaming grows
      Now that we're officially mired in the slow season for container shipping, the questions about slow steaming are changing.
      'This slow-steaming trend has become endemic,' said Francis Phillips of American Shipper sister company ComPair Data. 'Fairly soon the story will switch from who is slow steaming to who is not.'
      With nearly 12 percent of the world's containership fleet idled at the turn of the year, carriers have dragged slow-steaming initiatives from the Asia/Europe lane (where they're thought to be more productive due to the larger vessels in that trade) to the transpacific.
      Even if slow steaming with 5,000-TEU vessels doesn't bring the same fuel consumption benefits that a 10,000-TEU vessel does, it still helps. Just as importantly, it soaks up capacity. Perhaps most significantly, the more pervasive slow steaming becomes the more accustomed to it shippers will be.
      That would be a huge development as rising bunker prices and overcapacity plague carriers throughout the year. Widespread slow steaming is the easiest way to mitigate the effects of both, provided slower transits don't frustrate shippers too much. For some shippers, especially on the return trip to Asia from Europe and North America, 'just in time' will have to change to 'just a matter of time.'