Ferrulli commentary
Have carriers learned their lesson?
I greatly enjoyed Peter Spiller’s commentary, 'Shipping multipliers,' a well done synopsis of a particular economic theory. Trying to figure out how our government expects to get our economy back on the right track after they very selectively propped up or saved specific mismanaged segments of that economy is scary. But I’m not sure I connect government spending with the ocean carrier industry and its difficulties.
Sure, if the U.S. economy doesn’t come back there will be a negative impact overall in global trade; we are the largest buyer of “things” in the world, and to the degree that the United States slows down buying, the carriers will be impacted. But ours isn’t the only economy in the world. Asia is becoming as important and India is not far behind. And ships are easily taken from one trade to another. So taking up the U.S. slack is not impossible; indeed it is more than possible before the end of this decade.
Ocean carriers' challenges are really from within, having the discipline to act in a true business-like manner, as they have during the past 12 months or so. This, of course, is counterintuitive to the industry. They have a history of destroying themselves and the ocean floors are strewn with the remains of about 25 well-known entities during my career alone.
After overreacting to a slowdown in the Asia/Europe trades in late 2007 and early 2008 by dumping rates to virtually nothing and then having a prolonged global trade decline stretching into late 2009, the carriers found themselves in pure survival mode. They then began acting like businesses that wanted to remain afloat, taking dramatic actions to save themselves.
While I don’t think that the last note to that score of music has been played, apparently most are going to survive. The question is did they learn anything from the past two-plus years? Will they stop the overreacting every time there is a dip in the market? Will they continue to see volume and market share as the objective of their strategies? Will they continue their current “don’t give away things that cost money,” like no empty positioning of containers anywhere and intermodal rates and services that don’t cover costs?
The only cost issue I see the carriers changing over time is the speed of the vessels and fuel consumption. Slow steaming has accomplished three things for carriers:
' Reduced fuel costs.
' Soaked up a significant amount of capacity.
' Enraged customers.
The carriers didn’t build ships that are capable of 26 knots only to slow them down to 18 or less. They have learned to use them this way for the first two reasons; the third an unfortunate result. But over time, as the markets strengthen and begin to catch up to the real capacity in the world, they will go back to normal scheduling. To do otherwise will put them where shippers say they are at today, a simple commodity. That is the road to destruction.
But it remains to be seen if the carrier head offices in Asia and Europe have learned valuable lessons and that they will not readily repeat some of the self-destructive decision making of the past. Improving their relationships with cargo interests by providing reliable services on a highly consistent basis will provide a foundation for both entities to maximize their potential.
Gary Ferrulli
principal,
Global Logistics & Transport Consulting LLC
Chandler, Ariz.