Slip, sliding away

   It seems the more the liner carriers near their destination, the more they’re slip, sliding away.
   That destination is maintaining a positive bottom line through properly managed assets and sustainable freight rates for container transport. They — the top 15 publicly traded liner carriers — mostly accomplished this in 2010 through tightly controlled vessel capacities and remaining firm with shippers on rate levels, netting them collective operating profits of close to $10 billion. This was much needed considering the year before the industry lost $11.3 billion due to the global economic crisis.
   Liner carrier profit cycles seem to have gone from five years to one year — from record profits in a global recession to falling prices almost overnight. Shippers in tune with the ocean freight business are obviously scratching their heads asking themselves how could this happen.
   There’s no simple answer in a market where no two carriers are alike. Some are family-controlled, some government-owned, and others have a conglomeration of private investors at the helm.
   It may on the surface resemble how it’s always been in the industry. However, the industry dynamic has changed to a great degree. The top three lines — Maersk Line, Mediterranean Shipping Co. and CMA CGM — control roughly 40 percent of global fleet capacity today, and their market share in some lanes is one-third. This causes the remaining 17 liner carriers among the top 20, while big in their own right, to play a dangerous game of catch-up that helps upset the market balance — in this case introducing or ordering too much new vessel capacity in a short period and driving down freight rates in the mainline trades. (See article on pages 34-42.)
   During the depths of the global economic downturn, the same lines acted much more thoughtfully, rationally and for the good of their industry by laying up vessel capacity and shutting down money-losing services, often in the face of angry shippers. Now two years later, the carriers are back to making the same old pre-recessionary mistakes.
   Shippers, who now have the upper hand in the relationship through deteriorating freight rates, will lose in the long run. Working with financially unhealthy carriers serves to stifle industry progress and innovation, and we’re not talking about the construction of behemoth containerships. We’re referring to the nitty-gritty, mutually beneficial investments that facilitate carriers’ operations and enhance their customer service for shippers.
   With the global economy still limping along, and in certain markets threatening to spoil, the liner carriers’ ability to generate compensatory returns on their business may be further slip, sliding away for some time.