OOIL’s Tung: Costs will force carriers to refuse U.S. inland cargoes

OOIL’s Tung: Costs will force carriers to refuse U.S. inland cargoes C.C. Tung, chairman of OOCL’s parent company, OOIL, said today that the Hong Kong-based line and other carriers may be forced to copy the lead of Maersk Line by cutting back services to U.S. inland destinations as intermodal costs continue to rise.
   As revealed in the March American Shipper (pages 60-63), Denmark’s Maersk is reducing the number of U.S. and Canadian inland destinations by about 18, cutting shippers routing options from about 250,000 to 50,000.
   Tung said that while the liner market is showing signs of recovery, costs are still spiraling, commenting on OOIL’s 2006 annual results, which saw net income drop about 11 percent to $581.1 million.
   “Although bunker prices have come down in line with lower crude oil prices, terminal handling charges continue to rise as a result of both higher costs and the growing scarcity of available capacity,” he said.
   “Our greatest concerns, however, relate to intermodal transportation costs and especially the rising costs of rail transportation. Intermodal cargo rates must rise significantly to cover these increasing costs. If they do not then many intermodal destinations in the U.S. will become uneconomic and carriers will have no choice but to refuse cargoes for these inland destinations,” Tung said.
   Examining the prospects of the liner industry in 2007, Tung said that carriers are now better managing the introduction of new tonnage but “there continues to be significant concern in relation to a forecast oversupply of new tonnage into a weaker demand side volume growth environment.
   “However, the experience of only last year suggests that a number of commentators might be coming around to the adoption of a much more balanced approach and market sentiment at this time this year is more buoyant than at the same time last year.”
   Tung added that volumes were unseasonably strong in the traditional slack season at the end of 2006 and that 2007 has started well with load factors and freight rates higher than expected.
   “However, and as always, we must wait to see how this stronger sentiment translates into a movement in freight rates as the year unfolds,” Tung said.
   “The annual round of contract renewals on the transpacific, the largest of the east-west trades, will be crucial as a demonstration of whether the general direction of freight rate movement has been reversed and we are back into a recovery in the cycle.
   “The U.S. economy has recently been showing remarkable resilience and stability with the slowdown in the housing sector not having had any undue impact on other sectors of the economy. The volumes of furniture and other household items being shipped across the Pacific have softened as a result, but they have been more than compensated for by rising volumes of other cargo categories.
   “Consumer confidence and retail sales have both retained their general levels of strength and give cause for cautious optimism for the year of 2007 as a whole,” Tung said.