Shippers should worry about fewer liner carriers
Your June issue editorial (“Shippers should be outspoken about liner shakeout,” page 48) on what happens to shippers is a great point, but leaves out some important facts and conclusions.
This will mark the sixth straight year that the container industry will lose money. The first quarter of this year only one carrier made money—Maersk at a measly $37 million, or $700 million less than the first quarter last year.
Talk about an indictment of an industry. All favorable things happened—higher volumes, less fuel cost and less overall operating cost per slot, with the exception of one, rates. What they’ve done to rates is nonsensical. Lowering the rates doesn’t produce one more flat-screen TV and not one more pair of tennis shoes. Sure supply-demand ratios are unfavorable, but there are two ways to deal with it: 1.) go down the drain by continuing to reduce rates and watch many more carriers go out of business or merge, or 2.) take capacity out as the carriers did in 2009-2010. The carriers have never repeated that, but they should, yet they don’t.
The point is that alliances have saved many shipping lines and broadened the service scope of many, but several are still on the brink. Nothing new in this either.
To me the shippers better worry that they might wake up one morning and find something like the railroad situation in the United States where there used to be 17 Class I railroads and now there are technically five, but in reality four. There will be more than four ocean carriers surviving because some governments still subsidize their national carriers directly and indirectly, but one-by-one those safety nets are disappearing. There will be 10 ocean carriers left in 2022 with 90 percent of the global capacity and market share (my prediction for the past four years). That may well change the way the ocean carriers do business, because real businesses are required to make enough money not only to survive but to rebuild asset bases, etc., and adapt to a growing global trade. You can’t do that with the financial results of the past six years in the container-shipping business.
So worry about the right things—survival of the liner shipping industry to ensure that there are options.
History repeating itself
In response to the subject of downward pressure on rates, unsustainable costs and debt nicely outlined by Gerald Fisher in his June issue commentary (“Is the emperor naked on that horse?” pages 2-4), I offer the following.
For old hands in the transport industry, I needn’t draw comparisons to the 1980s, and the demise of U.S. Lines, but I want to use that time line while making my point. The shipper ultimately drives the rate/price. Fisher is correct in that a percentage of shippers do not see past the cost on the bill of lading, missing other costs of late deliveries, mishandling, etc.
As U.S. Lines was saying adieu, I penned a letter as president of Westwind Maritime to the major steamship lines and my customer base (many of which were with me on day one of Westwind in the early 1980s until it was successfully sold in 2010). The letter stated that as an international freight forwarder, we recognize costs and necessary profit to our carriers. We stated that what we expected in return for paying a fair rate was excellent service. The majority of my clients agreed with this approach, and we lived happily ever after. Westwind took a door-to-door delivered approach, and added powerful ancillary services along the stream during the sale and shipping and delivery of our clients’ shipments. Did we lose some clients to cheap rates on occasion? Yes, indeed. But not exporters who needed controlled and excellent delivery.
At transport functions, especially at the hospitality bar, those that held forth spoke with braggadocio of thousands of TEUs, and tons from the air side. At those times when I asked about margin, or hinted at the idea of sitting calmly with the right people at a client and walking through the whole cost of operations of the transport process, I was met with blank stares.
And now with the problem of too many ULCVs, we see that “History is…” Well you know the rest.
Edward M. Korleski,
Ignoring law of supply and demand
I read with interest your June issue editorial on “Shippers should be outspoken about liner shakeout” (page 48) and have just a few observations.
As a 100K-miles-per-year flier through United’s Houston hub I would offer this. Every flight, and I mean every flight, whether domestic or international is full, and I would say that pricing is fair considering how far in advance that you book. One thing that airlines have seemingly mastered is the ability to control capacity vs. demand. I agree that having fewer choices of carriers certainly helps achieve that.
In respect to container lines, I must say that they continue to ignore the law of supply and demand. Until they learn to control capacity they will continue to bleed money.
Perhaps these new alliances will change things. However, in my experience on the container side (one-third of my career was with Evergreen and NYK), I must say that I have my doubts. Considering what I do now, I feel for my former colleagues that still have to trudge along in the container business.
Director of Global Sales,
BBC Chartering USA,
VGM implementation in U.S. unnecessarily messy
There have been multiple incidents in recent decades that were directly caused by containers loaded beyond their maximum permissible payload and accompanied by false weight declarations. Accidents range from collapsed stacks, containers lost over-board to ships capsizing, containers breaking when lifted on terminals and civilian fatalities on public highways.
Now the International Maritime Organization is placing responsibility on shippers to verify the total gross weight of a packed container and provide this declaration to the ship operator before it is allowed to be loaded. Due to feedback from some shippers, the IMO agreed to permit a second method of establishing a verified gross mass (VGM) by which the entire contents must be weighed and added to the tare weight of the container itself. The tare weight is clearly documented on the left-hand door of every container in service.
Much of the complaining about a Method 2 VGM comes from the Agriculture Transportation Coalition. But the fact is that is not appropriate, or possible, for cargoes such as bulk grains, hay and other agriculture products to be weighed individually. That means Method 1 is the only option for these types of cargo and for this the tare weight is not relevant. Plus, the cost to weigh a container is not more than $15, which represents a very small element of the overall transportation cost and value of the cargo. Anyone who suggests that safety is not worth $15 is irresponsibly placing profits ahead of life.
National competent authorities, in some jurisdictions, have been extremely pro-active and helpful in guiding the industry. The United Kingdom’s Maritime and Coastguard Agency issued elaborate instructions to all U.K. shippers and ship operators in January and all major ports have since introduced facilities for weighing containers.
By contrast the U.S. Coast Guard has essentially done nothing, except for occasionally issuing misleading information. Coupled with slow action by terminals and ports, as well as unconstructive noise from some shipper groups (notably AgTC), what should be a smooth transition has become a pathetic drama in the United States.
The fact remains that on July 1, no ship is permitted to load a container for which a VGM has not been produced and lodged in good time (probably about 24 hours before ship’s arrival) with the operator of that ship. It is neither costly, nor difficult to comply with a common sense standard that probably should have been in place 40 years ago.