PO Shipping survived a tough 2011 on the transpacific when other small carriers didn’t.
By Eric Johnson
To say 2011 was a tumultuous year on the transpacific would be an understatement.
According to American Shipper liner research affiliate ComPair Data, of the 29 vessel operators in the trade at the start of 2011, eight dropped out, while 14 of the remaining operators reduced their capacity.
Most of the exiting lines were small to midsized carriers that likely found the rates non-sustaining, as eastbound transpacific demand was virtually stagnant.
Heading into the most crucial period of 2012 in the trade — namely the middle of annual service contracting season — the remaining players hope that a rebound in the U.S. economy will spur growth once again.
And one of the only small lines to survive last year’s transpacific tumult is optimistic that such a recovery is indeed underway.
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Dornford
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“As we continue to see job growth in the United States, and an increase in consumer credit, we’re optimistic that China’s imports and exports will be increasing,” MJ Dornford, vice president of sales and marketing for Hainan PO Shipping Agency (USA), told American Shipper in an interview in early March.
Shanghai-based PO Shipping is China’s third largest container line and the 29th biggest globally by fleet capacity, according to maritime analyst Alphaliner. It’s led by Capt. Li Kelin, a veteran of both COSCO Group and China Shipping, the country’s two largest carriers.
Aside from the transpacific, the company operates services to Oceania, the Middle East, Southeast Asia, and domestic China.
Despite some changing permutations to its transpacific network, which for most of 2011 included an operational partnership with Taiwan-based TS Lines, PO Shipping has maintained a presence in the transpacific.
It currently offers three services between China and the U.S. West Coast, two through slot-sharing agreements on separate China Shipping and COSCO Container Lines loops. PO Shipping entered the transpacific in the fall 2010, and Dornford said the China-U.S. lane remains the carrier’s “key trade.”
“We expect nothing to change in that focus,” she said. “We serve Asia to Australia. We have domestic China services, and we have intra-Asia services. So, the U.S. market is an extension of those markets.”
The liner industry’s drive for slot cost reductions has kicked into high gear in recent years, spurred primarily by the exceedingly high cost of bunker fuel, and the transpacific is no exception. Bunker now accounts for about 60 percent of a typical transpacific sailing, according to the Westbound Transpacific Stabilization Agreement, and at $750 per ton as of late February is at record high levels.
As American Shipper noted in its March issue, the average vessel size on the transpacific increased from 5,205 TEUs in late June 2011 to 5,806 TEUs in early February 2012. The increase in average vessel size serving the market was no doubt helped by smaller carriers (using relatively small vessels) vacating the trade.
But Dornford made the case for how smaller lines can prosper on a trade that seems to favor the “bigger is better” model.
“Slot costs are normally only one part of the puzzle,” she said. “In a downturn, it can be more difficult to fill larger ships. It’s not unusual for smaller players to be profitable and it’s not always that economies of scale result in profitability.”
That’s because small carriers, like PO Shipping, tend to be more nimble.
“There are a number of things that keep us operationally competitive,” she said. “We have quick turn times in port because our vessels can be unloaded quickly. It can take four days to discharge cargo on these larger ships. So we’re working vessels quicker, and building intermodal quicker because we’re not waiting for the rest of the cargo to come off the ship.”
Dornford also pointed to the advantages PO Shipping enjoys from an organizational standpoint.
“We have low administration costs,” she said. “We’re a lean organization, and that eliminates the need for mid-level management. We’re empowered to communicate information to customers without going through layers of management.
“We have an expedited pricing and contract process,” she added. “Our customers have access to executive management to resolve any issue or inquiry overnight. That gives shippers the information they need more quickly, and more time to develop their long-term strategy.”
From a shipper perspective, smaller carriers also provide opportunity for service diversification.
“There are several ways PO Shipping and other smaller carriers can benefit shippers,” Dornford said. “Whether shippers are large or small, we can give them consistent service. Larger carriers tend to focus on high paying or large volume customers. We were created to serve a mix of customers.
“Shippers have evolved from putting all their eggs in one basket, to choosing a select group of carriers that meet their various needs,” she said. “Using a range of carriers gives them greater leverage in negotiating service contracts. Plus, it gives them more protection in the market from a capacity standpoint.”
For example, Dornford noted PO Shipping offers one of the fastest transit times from China to the U.S. West Coast: “Being nimble, we’re able to quickly react to changes in the marketplace.”
Dornford was hesitant to forecast how 2012 would pan out from a supply and capacity standpoint, but reiterated the company’s expectations that imports from China will increase. The carrier’s mix of spot and contract rates is not unusual from other carriers, she added.
“We follow the market conditions,” she said. “Everyone’s aware of the financial costs of operations. I don’t know any shippers who don’t want a sustainable market long-term.”