Mismanaged transpacific capacity hurts the vulnerable
When Matson Navigation Co. said this week it was shuttering one of its two transpacific services, it was yet another example of the liner carrier industry finally coming to terms with the reality of the 2011 market.
American Shipper Wednesday chronicled all the services dropped on the transpacific in recent weeks, making it seem as if the lines are finally gaining a measure of supply/demand balance.
The number of services dropped just before 'peak season' is to begin is downright unusual. At first glance, it seems as though lines are taking the tough steps they should have taken earlier in the year.
But delving deeper into the capacity side of things, it's clear that in spite of service cuts in recent weeks, hardly an appreciable amount of capacity has been reduced since the start of 2011.
According to statistics from American Shipper affiliate ComPair Data, only 4 percent of transpacific allocated capacity has been cut since Jan. 1. That's the capacity ComPair Data estimates carriers have allotted to the trade from Asia to North America.
Meanwhile, the amount of nominal capacity — that is, all the available slots on ships sailing from Asia to North America — has fallen 9 percent in the same period. These numbers, incidentally, do not reflect the stopped Matson service.
To put it another way, carriers have dropped their physical capacity on the eastbound transpacific at twice the rate at which they've dropped allocated capacity.
What does this tell us?
It says transpacific lines, as a whole, have failed to effectively manage capacity as well as they could have. Ideally, the goal for carriers is to employ as many of their ships and at the same time provide just enough capacity to meet demand. What these numbers suggest is that the industry is doing the opposite, despite all the service withdrawals that have occurred in recent weeks.
But the withdrawals have not been evenly spread among all lines operating on the trade.
Of the five services dropped in recent weeks, three came from relatively new entrants to the trade — Hainan PO Shipping Matson, and The Containership Co. CSAV dropped a fourth, which had re-entered the transpacific almost like a new entrant.
Only the service dropped by the New World Alliance, the Hyundai Merchant Marine-operated PSW, can be considered a service suspension by an established transpacific line or alliance.
The point here is that while the industry operated too much capacity from January through April, the mismanagement of capacity is really only affecting mostly fringe players.
Not a single service has been altered by the CKYH or Grand alliances. Maersk, Mediterranean Shipping Co. and CMA CGM delayed plans to introduce a shuttle service from the Yangtze River Delta region to Southern California, but that service wasn't already in operation, nor would it have been considered a key transpacific loop for any of the three lines.
Take away the services that have been dropped — and any others vulnerable due to the newness of the operator or small ships deployed — and the key players on the transpacific have hardly been affected.
That's not to say they have effectively managed capacity. Simply standing pat, or introducing more allocated capacity into a low growth trade, isn't necessarily helpful to the market as a whole.
Rumors of rate wars between some of the bigger lines on the trade have persisted for weeks, and it will be interesting to see which lines have increased their share of the market by the time peak season winds down this year.
But one old tenet has reigned supreme — the strong have survived the latest lean period. ' Eric Johnson