APL exec highlights capacity, service challenges for shippers
By 2009 demand for container slots on the main transpacific water routes will outstrip supply, Eric Mensing, vice president government trade and affairs for ocean carrier APL, said Friday.
The Singapore-based carrier is forecasting 10 percent growth on the head-haul routes from Asia to the West Coast this year and beyond, Mensing said in a speech to the Transportation Table lunch in Washington sponsored by Traffic World magazine. There is less than a 2 percent gap in supply and demand, despite the fact that many mega-ships in the 8,000-to-10,000-TEU range are coming on line, and in two years demand will exceed capacity, he said.
Mensing's comments reflect last month's Transpacific Stabilization Agreement report about strengthening market conditions for 2007 based on double-digit demand growth and more judicious investment by carriers in capacity to prevent a recurrence of poor financial results experienced in 2006. The TSA represents 11 carriers, including APL.
APL has refrained from following the industry trend of building ships in the 8,000-to-12,000-TEU range in favor of a strategy that provides customers more sailing options.
Mensing said that the economics of big ship operations work well for the carriers, but that shippers with just-in-time delivery operations might be shortchanged at the port of arrival if their containers are buried at the bottom of the vessel. Shippers whose boxes don't make it onto the first train may wait for days until dockworkers can lift their cargo off the vessel.
The benefits of extra capacity and speed (some vessels are capable of 25 knots per hour or more) on the main trunk routes from Asia provided by the extra-large vessels may be canceled out by the extra time it takes to unload a vessel. Some vessels can take a week to unload and tie up berth space for other vessels too.
'The question is if all 10,000 slots are being effectively utilized,' Mensing said. 'Can you sell a 16-day transit because you are on the bottom of the ship instead of a 12-day transit?'
The answer for customers may lie in differential pricing, he suggested.
Landside infrastructure capacity issues threaten to act as a brake on international trade as highway congestion, limited room on the rail networks and port inefficiencies remain substantially unaddressed by industry and the U.S. government. Mensing said carriers and shippers need to collaborate to make better use of slack capacity in the international logistics system. Shippers should take steps such as spreading out cargo shipments to allow more mid-week arrivals at West Coast ports rather than bunching up around weekends (February American Shipper, pages 18-22), and making better use of alternative U.S. gateways.
APL 'so far' has not changed its strategy in reaction to Maersk's announcement early this month that it is ending routine intermodal service to some inland rail ramps, and concentrating cargo over fewer routes in an effort to maintain profitability in the face of high intermodal rail price increases. APL is temporarily insulated from some of the price hikes because its intermodal contracts tend to run longer and have not been subject to renewal.
But ocean carriers like APL that provide door-to-door service are all faced with higher rail costs and Mensing suggested that the rest of the industry will eventually follow Maersk and shift responsibility to shippers for arranging their inland moves.
'The days of the tailored service will change,' he said during the question-and-answer session. 'There will be more of a move to use these (specific) inland locations and the consignee will have to come and pick up the cargo.'
Carriers are also likely to follow the lead of APL in offering time-definite less-than-containerload services, Mensing said. In September, APL partnered with U.S. trucking company Con-way Freight to offer its OceanGuaranteed service with definite delivery dates for smaller shipments. The companies are promising for a premium to cut six to eight days from a regular LCL shipment by eliminating handoffs, deconsolidations and reconsolidations. Mensing said that carriers will begin to reenter the consolidation market ceded to non-vessel-operating forwarders by partnering with reliable inland motor carriers.