A vocal advocate for chassis pools now suggests liner companies pool ships.
Peter Keller, who retired at the end of March as executive vice president and chief operating officer of NYK Group Americas Inc., is an outspoken advocate of chassis pools, believing container carriers, terminals and draymen all dramatically benefit through the use of shared equipment.
He helped put that idea into action as former chairman of the Ocean Carriers Equipment and Maintenance Association (OCEMA) and founding chairman of its operating arm, Consolidated Chassis Management, which has created a half-dozen pools with equipment in dozens of cities in South Atlantic and Gulf ports as well as the Midwest and Rocky Mountain locations.
Now he is proposing that container-shipping companies pool ships, much as they do chassis, and as he believes they should be doing more widely with containers.
‘Why not pool ships in a broader way?’ he asks. ‘Why not create for purpose structures to pool and manage industry assets so that supply, by trade lane, can be more effectively managed?’
In remarks prepared for an International Trade Symposium of the Virginia Maritime Association in May and in an interview, Keller said containerships have become ‘a generic commodity. While we may paint them different colors and have varying stack and hull art, the ships are generally the same based upon the trade lanes, sized for the route they are deployed on.’
Pools could be run as ‘independent utilities,’ with the supply of tonnage increased and decreased gradually as demand warranted.
‘Why can’t we have a northern Pacific ship pool, a southern Pacific ship pool. An Asia/Europe pool? That might be more difficult because of the laws in Europe now.’
Keller, who is now running his own consulting and advisory practice, Peter I. Keller and Associates LLC, admits there would be obstacles to overcome to put his idea into action. But he noted the railroad industry was able to overcome many issues when it set up TTX, a common pool for freight cars, as did the liner industry in creating CCM for chassis.
Today, he notes, the supply of ships is adjusted in big chunks as individual carriers or alliances add strings of vessels.
‘Business is improving now. Let’s say every alliance and individual line on the West Coast puts in another 6,000-TEU ship into L.A.-Long Beach each week to take up this demand. All of a sudden you are going to have 40,000 or so more slots coming into Southern California each week,’ he said. ‘That will lead to overtonnaging yet again. But if one group puts a ship in, the other group is going to say, ‘I’m not going to let them have all the extra business.’ Here you go again.’
If vessels were pooled in structures larger than today’s alliances, if demand went up, ‘you could bring one more ship that everybody rides on, and everybody buys slots. We are buying slots on all sorts of ships these days, anyway.’ Likewise, if demand slackened, a ship could be laid up.
The most recent economic downturn in the shipping business, with losses for the liner industry estimated by many to be in the $20 billion range, is just the latest in what he says has been an increasingly violent rollercoaster ride for the industry.
‘There is not any question that what happened in late 2008 was one of the worst declines we have ever had over my 42 years in the business,’ he said.
Keller was unable to present his remarks at the VMA symposium, and they were read by Hayes Howard, chief executive officer of American Shipper.
Long Career. After graduating from Lehigh University and running trucks in Germany as a captain in the Army Transportation Command in the mid-1960s, Keller joined Sea-Land Service in 1968. He got his job when he saw a sign for Sea-Land as he was driving up the New Jersey Turnpike on his way to a banking job. He pulled over, arranged for an interview, and was hired the next day.
‘It was an exciting time. Sea-Land in the early days was a very entrepreneurial company, young, dynamic. It felt like we were making it up every day ‘ opening new trade lanes, designing new containerships, developing intermodalism. It was great fun; there was a lot of camaraderie. We were building something new.’
He left Sea-Land after 14 years to become president of CAST North America in Montreal in 1983. CAST, offered what he said was a ‘no fuss, no bother’ door-to-door service, using both rail and a fleet of company-owned trucks. The company’s reach extended far beyond Canada, with significant market share in Chicago, Boston and New York. Though not as remote as Prince Rupert or Halifax, the company’s intermodal strategy with U.S. customers is not unlike those being pursued today by carriers calling those ports, he said.
After CAST was sold to CP Ships, Keller worked as a consultant, then joined NYK in 1999. Where CAST was a young company offering a plain vanilla service in 20- and 40-foot dry containers on the transatlantic, NYK is a 125-year-old company operating a global network of container, roll-on/roll-off and bulk ships. With its own terminal companies ‘ Ceres and Yusen Terminals and fully integrated logistics services ‘ there is little in the way that NYK cannot offer its customers.
By dint of his personality, long career, and NYK’s desire to take a leadership role in the shipping industry, Keller, has had a high profile in the shipping industry over the past decade. He became only the second non-Japanese nominated to its NYK’s governing board and first to be named president of NYK Line (North America).
During his career, Keller said he has seen the shipping industry go through many modulations.
‘I can’t remember how many ups and downs we have had ‘ we seem to do them every three to five years. But just as we see with the stock market, every succeeding fluctuation seems to be deeper and faster and the recovery seems to almost bounce up higher, and the time between cycles seems to get shorter.
‘One of my concerns is that as business starts to get better, people will start to look forward again and they will not think about history,’ he said. ‘They will not think about what happens when a major carrier goes in and dumps some rates after Thanksgiving to get some market share back, and thinks there will not be any counteraction.’
Freight rates, he noted, can deteriorate extremely quickly when a company ‘goes out to play market share as opposed to sustainability.
‘It gets to be a big snowball that gets bigger and bigger as it goes downhill until it takes the house down,’ he said. ‘At some point you can’t get in front of it and stop it unless you want to totally exit the business.
‘And the really interesting thing about this is, of course, we all know that,’ he said. ‘But at some point there is something in people that says, ‘I can do it,’ or ‘I can do it and nobody will know,’ or ‘I can do it because I’m allowed,’ ‘because I’m big,’ ‘because I’m little, I’ll fly under the radar.’ But whatever the reason, it happens, and we keep doing it.
‘So the trick is, don’t ever start the snowball going,’ he said.
Learning From Railroads. Unlike some, Keller does not blame the recent downturn on the liner companies overbuilding vessels, noting economists seemed to be unanimous in their forecasts of double-digit growth for the container industry through about 2025.
But carriers, he suggested, can learn from the behavior of railroads and motor carriers, saying they did a better job of coping with the recession.
‘Did they destroy their rate structure or did they lay up thousands of locomotives? What did the truckers do? Did they destroy rate structure or park thousands of trucks?
‘Since we can’t work on the demand side ‘ we can’t just generate demand ‘ we have to learn how to manage supply. We have never been good at it and it is something the industry needs to be able to do,’ he said.
Among the challenges in setting up such a scheme, he noted, would be the fact that many shipping companies now own in whole or part marine terminals ‘ ‘you’d have to figure out a way as part of this to spread the wealth on the terminal side.’
Slow Road Back. Keller believes the liner shipping industry will not snap back quickly, but have a gradual recovery.
‘Growth is going to now normalize in a more mature environment and we are going to see 3 to 6 percent as opposed to 10 to 18 percent growth that we have seen in the past, and I think we are going to have to adjust to that. It is going to take us a couple of years to get back to where we were in 2008,’ he said.
He said he is concerned that as the industry recovers this year and begins to make money next year, it may ‘forget how we got here. We will hopefully be breaking even this year and making money next year. Then everybody will forget and not be focused on the policy changes or ideas that are necessary to make paradigm change going forward. A couple of years will go by when something happens ‘ and something else will happen ‘ and here we go again!’
The industry, he said, needs not only to do a better job of controlling capacity but also pricing.
‘We need to not be shy about getting paid for what we do,’ he said. ‘Carriers have to stop using the supply/demand equation as the excuse to destroy the rate structure.’
Would pooling ships mean more uniformity, less room for carriers to compete? Keller doesn’t believe so, saying while carriers all might have the same transit times to say, Shanghai to Los Angeles, there would be plenty of areas where they could compete, from pricing to service levels.
And Keller said in his conversations, he often finds that shippers are unhappy with one or more of their carriers, feeling that they are no longer getting the level of service, that they are unhappy with automated service centers, with the decision to locate service centers in offshore locations or with a lack of attention from salesmen.
‘At the end of the day we are all about what the customer wants and not what we are selling,’ he said. ‘There is a big difference between listening to the customer and providing a product that he wants as opposed to saying, ‘this is where I go, this is what I’ve got.’ ‘