GSF goes public
At Global Shippers Forum's first conference shippers' role in the air freight industry, evolving intermodal took center stage with global economy.
By Eric Johnson
For the last three years, the world's major shipper groups have been meeting annually to discuss critical trade and transportation issues on a global scale under the Global Shippers' Forum banner.
But those meetings have largely been held behind closed doors, a safe haven where representatives from European and Asian shippers' councils and the National Industrial Transportation League (among other shippers groups) can freely debate issues out of the public glare.
In early November in Dubai, the GSF held its first public forum to discuss what ails shippers.
The first ever Global Shippers' Conference failed to draw a huge audience, despite being held in concert with a major logistics conference. But the discussions were robust, and touched on some of the critical issues that have generally been kept behind closed doors.
There were the common GSF themes of breaking up carrier conferences, and Asian shippers bearing the brunt of ocean freight surcharges, but among the other themes to emerge were:
' Whether the global economy is actually recovering yet.
' Shippers taking a more active role in the air freight industry.
' Better use of intermodal transportation.
On that last point, Ben Hackett, principal of maritime and trade consultant Hackett Associates, provided an early silver lining to the conference, boldly declaring that things were not as bad as they seemed.
'The downward slide has come to an end,' he said. 'Companies are beginning to restock again. Slowly, but it is happening. There is pent-up demand from the consumer. In the U.S. 70 percent of GDP is driven by consumption. If the consumer is confident, we will see a rebound.'
Hackett said signs point to an 'L-shaped' recession, led by a more rapid recovery in China and other emerging markets.
'China's stimulus focused on the domestic economy and on infrastructure,' he said. 'Their economy survived the drop in merchandise exports.'
Global container volume is forecast to drop 8.4 percent in 2009, headlined by big losses on the transpacific and Asia/Europe trades.
'But the intra-Asia and north-south trades have held up pretty well,' Hackett said. 'That's balanced out, to some degree, the east-west losses.'
Hackett said that restocking of inventory, which bolstered trade volumes in late summer and early fall, shouldn't be discounted as a sign of recovery.
'Inventory rebuilding has been the major factor in the recent growth of trade,' he said. 'Following that, we expect to see consumption grow. After 12 to 18 months of declines, inventory eventually does run out. And the fact that (the European Liner Affairs Association) has had five straight months of month-on-month growth indicates to me that we've hit the bottom of the trough. We're seeing the same thing in the transpacific. The second quarter was 8 percent higher than the first quarter, and the third quarter was 13 percent higher than the second.'
But Hackett had one caveat: 'If crude goes higher than $80 per barrel, there's a real risk of recession returning. It should be about $50 to $60 based on demand.'
Robert Jan van Trooijen, chief executive of Maersk's western and central Asia region, concurred that there were signs of recovery, but that the future of cargo transportation would be affected by the downturn.
'If it is an L-shaped recovery, then we are looking at a new future in terms of growth rates,' he said. 'The question is whether the recovery is being driven by consumer demand or by government intervention.'
Van Trooijen was referring to stimulus packages granted by governments, but he then said the liner industry was subject to the same questions. He, like other Maersk executives have stated in recent months, would prefer to let the market sort itself out.
'We've seen examples of lines that, without government intervention, would have run out of cash,' he said. 'The way we see it, consolidation will happen. Maersk has gone through acquisitions and has been able to deploy these economies of scale we have today because of that.'
Lest it not be forgotten, the event was a shippers' conference and questions were immediately raised about whether consolidation would benefit shippers. Consolidation, some panelists argued, can go too far in some instances, especially if ocean carriers try to expand into other modes.
Dick van den Broek Humphreij, chairman of the European Shippers' Council, gave the example, without specifically naming it, of P&O Nedlloyd, which was acquired by Maersk in 2005.
'We have a recent example of a carrier overextending itself in terms of downstream acquisitions to the point where it was bought by a rival,' he said.
As an aside, Andrew Traill, policy director of the ESC and managing partner of the U.K.-based Shippers' Voice, wrote in early December that using government money to bolster troubled shipping lines and ship owners was bad public policy.
'If governments now decide to prop the sector up, what kind of message does that send out?' said Traill, who also served as a moderator at the Global Shippers' Conference. 'It wasn't that long ago that such people were making obscene amounts of money. It was the prospect of huge returns on investment that fed the frenzy of new ship orders, not a careful consideration of what the market needed.
'I think it is time to draw a line in the sand and learn the lessons of the past extraordinary year and the business decisions of recent years which led up to it. If we keep propping up the old system with state aid without forcing a fundamental change in practice and behavior from the lines, what chance have we to meet the challenges of the next five or 10 years with the right business and investment decisions?'
Up In The Air. On the air cargo side, a panel discussed whether shippers were being left out of air freight supply chains by forwarders and airlines.
'There is a love-hate relationship between shippers, forwarders and airlines,' said Willy Lin, chairman of the Hong Kong Shippers' Council.
Lin said that previously the HKSC would sit down with freight forwarders and find benchmark prices for certain commodities and destinations.
'Now, with the competition law in the EU, that doesn't exist,' he said. 'The more the airlines understand our seasonal demand, the better. We need to communicate it to them very early.'
Ram Menen, divisional senior vice president of Emirates SkyCargo, agreed.
'As an airline, we would love to know your business,' he said. 'But right now, we don't have that transparency. There's no clear visibility or continuous replenishment strategy, particularly in the electronics industry. A shipper will not even communicate with the forwarder sometimes. They'll show up with 10 or 20 tons and expect the forwarder to move it immediately. Some of our best relationships are tripartite, but shippers need to be more involved.'
Menen said it was important to understand that airlines largely view the ultimate cargo owner as the customer, not the shipper.
'The consignee is the customer,' he said. 'I don't consider the shipper a customer. He's a partner to service the consignee, just like the forwarder and the airline.'
Menen also told attendees that business from forwarders is often preferred over direct business from shippers.
'Forwarders have an advantage over shippers for airlines,' Menen said. 'If shippers book directly with the airline, and their shipment is delayed, that space isn't filled and it's wasted. If we deal with a forwarder who's working with the goods of multiple shippers, they can fill that space.
'The forwarder industry is evolving. They're going from fulfillment, to assembly, to shop shelf, even to reverse logistics.'
Menen also spoke of rethinking the whole relationship between forwarders, airlines and shippers. He said airlines are doing their best to cut costs with minimal effect on service, but that there are endemic issues that prevent cargo carriers from maximizing revenue.
For instance, 60 percent of Emirates' cargo moves in the belly space of passenger jets (as opposed to freighters), yet there's a disconnect between the size of a typical cargo skid and the belly hold.
'The average air freight skid height is 46 inches, while the belly height is 62 inches,' he said. 'That's 33 percent of wasted space.'
He also said it will be a while before shippers see the type of capacity they did before the downturn.
'The crisis has wiped out a lot of capacity and some of that capacity is not coming back,' Menen said. 'The next three to four years will be a challenge to draw financiers back to the cargo market. It took a long time to draw them in in the first place.'
Another air cargo topic at the conference revolved around better use of sea-air shipments. These intermodal moves are gaining some traction, particularly from Asia to Europe, with the Middle East ' and its many air hubs ' as a pivot.
'If you have faith in sea and you have faith in air freight, why don't you believe in a combination?' said Peter Knopf, CEO of Dubai-based SAT Albatross Sea-Air Transport. 'Because you think it's double the trouble? For us, it can be very constructive. There is no reason people shouldn't be able to trust in a combination of two mature, highly engineered modes. (Shippers) may not be 100 percent aware of the structure. They may think sea-air is forwarder driven. But think of it as one carrier who handles the whole shipment.'
Willem Buitenkamp, director of corporate logistics in Europe for Sun Chemical Corp., said it's a matter of how customs regulations are applied on such creative multimodal shipments. As an example of bureaucracy getting in the way of multimodal trade, he cited a short sea shipping situation in the European Union.
'A shipment from Zeebrugge to Bilbao is considered to have left the EU and so it must clear customs in Spain,' he said. 'You would think the EU would quickly clear these hurdles, but it takes time.'
The implication is that same shipment moving by train wouldn't face the same roadblock.
As far as sea-air shipments go, Menen said the biggest barrier is paperwork.
'Sea needs a bill of lading and air needs an air waybill,' he said. 'Until we change our mentality, that will be a problem.'
He pointed to the International Air Transport Association's e-freight program, which eliminates the physical paperwork corresponding to 16 trade and customs documents in air freight, and can help the industry get over the 'hurdles of the mind.'
Van den Broek Humphreij, of the ESC, said a major hurdle to innovative multimodal shipments is that governmental regulations in most parts of the globe are not set up to easily allow cargo to move from one mode to another.
'There's not really a system that leads to random intermodality,' said van den Broek Humphreij. 'You either go by train or boat or road or plane, with a short last-mile road piece.'
Finally, van den Broek Humphreij also mentioned the U.S. Importer Security Filing requirements, more commonly known as '10+2.' He said there was a backlash from shippers when the United States implemented advanced manifest regulations a few years back, with shippers arguing the regulation was going to be a burden. But instead, he said, the requirement helped shippers become more organized and actually lessened administrative burdens in the long run.
'Could the same benefit arise from 10+2?' he said. 'Could it also help promote intermodality by keeping these companies from having to fill out several sets of paperwork.