The changes taking place in the container-shipping industry are structural, not cyclical, said Ron Widdows, ex-chairman of the World Shipping Council and former chief executive officer of Neptune Orient Lines, the parent company of APL.
“The idea that there’s going to be a rebalancing in supply-demand in this sector may be a fantasy, a wish by the carriers,” he said, adding it’s likely there will be an ongoing supply-demand gap through at least 2017.
Speaking in late March at a conference in San Francisco sponsored by the terminal operating system company Navis, Widdows suggested that deeper collaboration among carriers, beyond the current alliances, could help shipping companies reduce costs and compete with the most efficient carriers.
The trend by carriers to operate much larger ships, led by Maersk Line, has resulted in “a remarkable difference over a relatively short period of time. Many of the things that [Maersk] has done has the rest of the industry reacting.”
He said the large-scale companies, like Maersk and Mediterranean Shipping Co., is beginning to “show itself in a much more significant way.”
With the largest carriers able to make more money than their competitors at significantly lower rates, many companies are adding new ships.
Now the head of his own Singapore-based consulting company, Widdows reminded his audience that while alliances dominate the transpacific, transatlantic and Asia-Europe routes, they have not yet been extended into north-south or intra-Asia routes where there are significant opportunities.
That may happen in the coming years, though he noted there are barriers and parochial interests that may block alliance expansion.
Hong Kong-based OOCL, for example, has “a massive, wonderful intra-Asia” business, he said, and its “interest in having their alliance partners play in their intra-Asia market is not very high.”
OOCL said intra-Asia and Australasia business accounted for 52 percent of its lifts and 35 percent of revenue in 2014.
Separately, London-based Drewry Shipping Consultants said last month rumors of a possible merger of OOCL and Widdows’former employer, NOL, “is probably not more than hot air.”
The shipping industry is likely to face an oversupply of capacity and pressure on rates and profitability forever, said Widdows, who suggested global supply and demand has become irrelevant when compared to supply and demand on individual trade lanes.
He questioned the long-term significance of the drop in fuel prices, stating ship operators will continue to seek reduced costs as a matter of survival.
“If you are a customer you’re going to continue to be subjected to changes in the flow of your business and the efficiency of service,” Widdows said. “Carriers are still focused on cost. In spite of what you might hear it has nothing to do with reliability, it has nothing to do with service excellence, it’s about cost.”
He said the complexity of the liner industry “has increased exponentially” as a result of shipping alliances, and the most difficult part of an alliance is not in figuring out how to share ships and allocate space on vessels, but rather “where ships are going to go.”
“I want my ships at my terminals. You don’t want your volume at my terminals, I don’t want my volume at your terminals. The process is horrible and what it does is it tends to sub-optimize,” he said.
This is particularly a problem in the ports of Los Angeles and Long Beach, where several of the alliances call multiple terminals.
Widdows believes the configuration of current alliances may change in the coming years, with carriers grouping in different ways.
He also said there is untapped potential for carriers to achieve savings, through deeper collaboration.
For example, an alliance might be able to run a group of terminals as a single entity or manage their intermodal business jointly.
“Imagine that you had a number of carriers within the G6 and they coordinated their activities. From an operating standpoint, combining activities gets you to a scale to be able to drive a more competitive cost structure,” he said.
“Wouldn’t it be wonderful if the G6 could interface with the railroad through one gateway?”
Railroads, Widdows said, would be able to build longer trains and increase density, and “the economics of that have to be huge.”
He said an alliance might be able to operate a single trucking entity to coordinate drayage, eliminating the numbers of empty drays and trucks that are required to do the same amount of work.
“Once upon a time, I took logos off the APL boxes. I was almost strung up by the neck by my own company,” he recalled. “The fact is most customers, they don’t give two hoots about what’s on the side of the box. Whose logo is on the side is irrelevant. So could you operate a fleet in common? Of course you could. You would require less containers.”
Another area for possible carrier collaboration is documentation, he suggested.
“Today everybody’s got a service center. So could an alliance have a single service center? And do the documentation for the whole alliance in one place? Of course they could,” he said, though noting there would be both regulatory and technology requirements to work out.
Widdows said there is a “technology thread that runs through a lot of the opportunity that exists for the industry.”
He recommended terminal-operating systems should expand and “grow outside the confines of the terminal to help with the visibility of cargo.”
Shipping companies need to think more about managing their companies as a “conveyance system,” he said, it would be wise to give the shipper “the ability to interact with that system” and allow it “to actually affect the priorities” associated with its business.
This column was published in the May 2015 issue of American Shipper.
