• ITVI.USA
    15,415.310
    54.710
    0.4%
  • OTLT.USA
    2.761
    -0.007
    -0.3%
  • OTRI.USA
    21.110
    -0.300
    -1.4%
  • OTVI.USA
    15,387.520
    55.710
    0.4%
  • TSTOPVRPM.ATLPHL
    3.300
    0.000
    0%
  • TSTOPVRPM.CHIATL
    3.140
    0.190
    6.4%
  • TSTOPVRPM.DALLAX
    1.590
    0.150
    10.4%
  • TSTOPVRPM.LAXDAL
    3.330
    0.020
    0.6%
  • TSTOPVRPM.PHLCHI
    2.170
    0.020
    0.9%
  • TSTOPVRPM.LAXSEA
    4.080
    0.130
    3.3%
  • WAIT.USA
    125.000
    -1.000
    -0.8%
  • ITVI.USA
    15,415.310
    54.710
    0.4%
  • OTLT.USA
    2.761
    -0.007
    -0.3%
  • OTRI.USA
    21.110
    -0.300
    -1.4%
  • OTVI.USA
    15,387.520
    55.710
    0.4%
  • TSTOPVRPM.ATLPHL
    3.300
    0.000
    0%
  • TSTOPVRPM.CHIATL
    3.140
    0.190
    6.4%
  • TSTOPVRPM.DALLAX
    1.590
    0.150
    10.4%
  • TSTOPVRPM.LAXDAL
    3.330
    0.020
    0.6%
  • TSTOPVRPM.PHLCHI
    2.170
    0.020
    0.9%
  • TSTOPVRPM.LAXSEA
    4.080
    0.130
    3.3%
  • WAIT.USA
    125.000
    -1.000
    -0.8%
American Shipper

Shippers vent over pent-up cargo

Shippers vent over pent-up cargo

      The biggest issue of the last month is clearly shippers' disgust over their cargo being held back in Asia due to a lack of ocean carrier capacity (see cover story).

      Over the last few weeks, I've heard and then witnessed their anger. The situation somewhat resembles a brief and surprising backlog of air cargo in Asia in the weeks leading up to Christmas, but with one clear distinction: air carriers sought to take advantage of that situation by introducing temporary capacity.

      Ocean carriers were clearly uninterested in doing the same for a couple of reasons. First, it's simply easier to activate a plane that's out of service than an ocean vessel that's been laid up. Second, ocean carriers, despite the potential for more volume, were uninterested in doing anything that might upset the progress they've made in restricting excess capacity.

      One shipper told American Shipper in early March that the problem appears to be that cargo owners who failed to negotiate water-tight contracts (i.e. ones that can't be amended) are being stung with rapid rate increases and surcharges by transpacific carriers. Those that do have contracts that can't be amended are being leaned on by carriers to pay the higher rates anyway, with cargo being held on Asian docks if they don't.

      Now these situations don't apply to all carriers, and shippers are understandably reticent to point to specific lines. But the effect of even a handful of lines engaging in punitive measures to seek rate increases can be felt across the entire industry.

      Space is tight and will have only loosened by the end of March and in April, at which time several carriers who shelved transpacific and Far East/Europe services for the winter are likely to reintroduce those loops. The irony is, the demand surge in early 2010 might well have abated by the time many of the services get rolling.

      As Maersk Line Chief Executive Officer Eivind Kolding pointed out in a speech in early March, the surge was mostly due to stock replenishment and not underlying economic growth. If carriers don't manage capacity as strictly as they have through the winter, they could find the pendulum will have swung the other way. That won't be as big an issue on the transpacific, where annual contracts will have mostly been tied up by the time any overcapacity develops, but it will quickly become evident on the spot rate market and on the Asia/Europe lane.

      The thing to remember is, if the supply situation swings in the favor of shippers, they'll remember what happened to them and their cargo in early 2010.



TSA gets right to discuss slow steaming

      Transpacific Stabilization Agreement members in February won from the Federal Maritime Commission the right to collectively discuss a number of environmentally friendly measures.

      The most notable of those measures is slow steaming, the practice of actively slowing down vessels to cut fuel consumption, ship emissions and cost. For carriers, slow steaming seems to be the Holy Grail, the proverbial win-win. Aside from the fact that their shipper customers must recalibrate their supply chains to account for slower ocean transit speeds, the move saves carriers hard cash while winning them brownie points in the environmental arena.

      That the FMC has approved joint discussions of slow steaming only legitimizes the practice. But a key point to track going forward is whether the costs savings from slow steaming goes in the pockets of carriers or is passed on to shippers through lower fuel surcharges.

      The price of oil seems headed north (yet another inducement for carriers to sail slower) and so it would figure that bunker surcharges would rise as well. But if carriers are gaining operating cost advantages by slow steaming, shippers will argue that the burden of high oil prices will be lighter, and so the formula for fuel surcharges should be amended to reflect that.

Lidinsky

      According to a Feb. 19 American Shipper report ('FMC has economic green agenda,' www.AmericanShipper.com/links), FMC Chairman Richard Lidinsky said he has been told shippers would share in the savings that carriers realize from slow steaming, perhaps through lower fuel surcharges.

      In the aftermath of the FMC decision, TSA officials lauded the decision, saying they need the ability to coordinate on slow steaming and that their customers were interested in 'greening' their own supply chains. But the TSA didn't address the issue of whether fuel surcharges would be lowered (or the formula recalculated) to account for slow steaming.

      If shippers don't see those savings, and if ship speeds remain slow, you can expect to find shippers petitioning the FMC to revoke the carriers' right to discuss such measures or ask for better regulation of the carriers on the issue.



Unlucky year or bad business?

      Why are carriers so persistent about raising rates, to the extent that they appear unruffled by shipper outrage? A good bet is they are more concerned about pleasing their shareholders and creditors than their customers.

      While that may not be a lasting business model, it's important this year for this reason: if you lose gobs of money in one year, as every carrier did in 2009, it can be blamed on extraordinary circumstances. But if you lose money for two years, it suggests you're running a bad business.

      Take CSAV, the Chilean line that said in early March it sustained losses of nearly $600 million in 2009. Considering the size of its business, that's an incredibly poor performance, particularly coming on the back of 2008 when it lost $134 million while most other carriers at least made some profit.

      To look at the loss another way, CSAV forfeited $666 in cash for every 40-foot container it carried, a simply staggering development.

      The impetus is clearly on lines like CSAV (and others) to show they are indeed sound businesses and not albatrosses around the necks of shareholders, business partners and governments.

      A line like CSAV can't simply say it has solid long-term potential because container shipping has solid long-term potential. There are other lines that performed better during the downturn than it did, and if 2010 proves to be another difficult year, it will be almost impossible to say CSAV is a good business and was simply unlucky.

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