MERCER: "CONTAINER LINES ARE IN NO PROFIT ZONE"

   Container shipping lines are caught in the "no profit zone" and continue to trade in a difficult business environment, according to Mercer Management Consulting.
    Dirk de Proost, vice president of Mercer Management, told the Shipping Forecast conference in London that containership operators face six negative "industry dynamics." They are:
* Inadequate and declining operating profit margins;
* Returns on investment below capital costs;
* Benefits from global alliances below expectations;
* Industry fragmentation with services treated as a commodity;
* The inability of carriers to raise rates even when ships are nearly full;
* And increasing over-tonnage in the last two years.
    De Proost said that ocean carriers have average operating margins of 5 percent as a percentage of revenue, compared to 25 percent average margins in the railroad industry, 18 percent for terminal operators and 8 percent in the third-party/logistics sector.
    De Proost warned that, as witnessed after deregulation in the U.S. railroad industry, ocean carriers may pass a large portion of cost savings to shippers through lower prices. He said that deregulation can give ocean carriers opportunities, but asked whether they will be able to develop value-added services to reverse the downward trend in ocean rates.
    Alternative future scenarios would be carriers losing the control of the "value chain" to freight forwarders and non-vessel operating common carriers, or a "prolonged bloodbath" for shipping lines, the consultant predicted.