2011 OCEAN SHIPPING ROUNDTABLE: Resetting strategy
Last year, shippers were concerned that they would be scrambling for capacity as the recovering economy generated cargo demand—but that scenario failed to play out. With vestiges of the recession still lingering, it’s the carriers who have gone back to the war room.
in the NewsMajor changes in air cargo freighter market driven by e-commerce, reports consultancy Maersk Line’s acquisition of Hamburg Süd gets sales and purchase agreement approval AAR reports mixed carload and intermodal volumes for week ending April 22 BTS reports February gain in U.S.-NAFTA trade U.S. ports may face difficult financing decisions, says Fitch Ratings More News
Just how sincere are shippers and ocean carriers when they say they want to improve collaboration efforts on the high seas?
As Logistics Management readers know, the first half of 2011 marked a changed attitude among ocean carrier executives who voiced positions of compromise and a new service-oriented attitude. But now we’re not sure if ocean shippers are really buying it.
We’ve gathered a trio of prominent association executives and industry insiders to hear their opinions on how the new “era of collaboration” is progressing. Our panel also weighs in on the potential impact the Panama Canal expansion will have on U.S. ports as well as the possible affect growing equipment and capacity constraints could have on this year’s Peak Season.
This year’s panel consists of Robin Lanier, executive director of the Waterfront Coalition, a group of concerned business interests representing shippers and transportation providers; Peter Friedmann, executive director of the Agriculture Transportation Coalition that monitors government and commercial activity related to ocean shipping; and Don Pisano, ocean cargo chairman for the National Industrial Transportation League and vice president in charge of imports for the American Coffee Corp.
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Logistics Management: There’s been a lot of talk about collaboration over the years, but carriers today genuinely seem to be pursuing shipper feedback. In fact, in a recent speech made by Maersk Line CEO Eivind Kolding, he noted “fundamental changes” in the shipper/carrier relationship. Has this really been case?
Don Pisano: I believe that shippers are encouraged by the remarks made by Mr. Kolding and other executives in the liner community for trying to develop closer working relationships with their customers. Clearly there is a need for a greater dialogue between carriers and shippers to bring about fundamental changes, which will lead to better economic partnerships.
Robin Lanier: I have always thought that the Ocean Shipping Act of 1999 created a new environment for collaboration between shippers and carriers. However, the need for discussion continues, and shippers will need to focus on issues that extend beyond rates. For example, shippers should be working with carriers to improve the movement of their freight through and beyond marine terminal gates.
Peter Freidmann: I agree. While it’s true that ocean carriers are more sensitive to shipper needs and objectives, it may be because the major ocean carriers are expressing less interest in collaborative pricing and service contract policies. The presidents of Maersk and MSC have, in recent months, declared their independence from the talking and pricing agreements and have expressed their willingness to work and prosper in an environment in which ocean carrier conferences no longer exist.
LM: Meanwhile, the ocean carriers have given up on being in the chassis business. What new pressure does this put on shippers?
Friedmann: Frankly, the carrier initiative to divest themselves of chassis appears to be a much more important issue to the carriers than it is to the shippers. This may change, but for now, shippers perceive that carriers are delaying their chassis divestiture and that the trucker will provide the chassis.
Lanier: I take a little bit of an exception to the assertion that carriers have gotten out of the chassis business. For store-door customers not much has changed. In fact, the changes seem to apply mostly to merchant haulage where the shipper arranges for drayage services. Under this model, truckers will need to provide chassis on behalf of their customers, and shippers can expect to see invoices for the use of chassis.
Pisano: That’s right…and for each line not providing a chassis, we must factor into our freight calculations the expected additional costs per container when comparing rates among our ocean carriers. That is particularly burdensome on distribution centers and public warehouses when scheduling the unloading of containers received from multiple clients using various ocean carriers, some with free chassis and some bearing a daily chassis rental fee.
LM: Capacity concerns are also top of mind these days. Is there any indication that carriers are getting better at repositioning boxes for your constituents during Peak Season?
Pisano: We believe that there will be continued tightness in 20-foot dry containers coming out of Asia. However, 40-foot containers are available and can be substituted provided sufficient vessel space remains available. I would caution shippers to expect minimal shipment delays due to vessel and equipment capacity shortages through the Peak Season.
Friedmann: There have been many reports that there will be capacity constraints in the form of container shortages during the course of 2011 and particularly during Peak Season. However, the freight rate trends don’t suggest that anyone really believes that there will be container shortages or capacity constraints. It appears that the demand for ocean transportation services is declining; and there may not even be a Peak Season this year.
LM: By all accounts, intermodal is gaining on pure-play trucking moves. Will this trend continue?
Friedmann: Indeed it will. With increased cost of trucking on the horizon, due to increased cost of fuel and the anticipated new hours-of-service (HOS) regulations, cargo will continue to be driven off the trucks and onto the railroad.
The Obama Administration is proposing HOS regulations that will increase the cost of trucking between 9 percent and 11 percent. In addition, the administration is eliminating a long-standing truck safety measurement database, which is increasing some of the risk associated with trucking and putting the burden on the shipper to identify the safer truckers. This will also increase the costs to the shipper. (See LTL Special Report).
LM: Are there any indications that barge moves are going to ramp up as well?
Pisano: We would be very supportive of increased use of our marine highways, but clearly their development needs to be part of a long-term national freight transportation plan with public/private projects added.
Friedmann: I agree with Don. There are many advocates for short-sea shipping, and maritime commerce as an alternative to congested surface transportation makes sense, but it has been slow to be adopted. As long as time is of the essence, trucking will have a competitive advantage over waterborne commerce. However, waterborne commerce offers fuel efficiencies and cost savings. Should there be a trucking shortage in the future, waterborne alternatives will become more attractive.
LM: What are the major regulatory obstacles ocean shippers will face in the remainder of 2011? Any hidden agendas we should be aware of?
Lanier: I don’t see any major regulatory obstacles for the remainder of 2011 that would cause heartburn for ocean shippers; but that’s not to say that we are expecting calm seas. We’re certainly following the proposed HOS for trucking as well as the efforts around the country to mandate the employment status of harbor truckers. Earlier this year a proposal popped up in the California legislature that reclassified all port truckers as employees. It should come as no surprise that advocates for this policy are hard at work in other state capitols.
Pisano: Expect Customs to be more aggressive in ensuring timely and accurate Importer Security Filings (ISF) and asserting “do not load” orders and assessing penalties—at least for the most delinquent of ISF filers. Also expect that the implementation of the recently enacted FDA Food Safety Modernization Act will impose significant new requirements on food, drug, and commodity importers.
Freidmann: The greatest obstacle faced by U.S. agriculture and forest products exporters is the growing impediments on exports imposed by Customs within the Department of Homeland Security. Long accustomed to closely regulating, scrutinizing, and penalizing imports, Customs is bringing the same approach to exports: imposing needlessly burdensome data requirements on exporters, imposing unnecessary and unjustifiable delays and holds on exports, and imposing draconian penalties on exporters for the most minor clerical errors.
LM: Many Gulf and East Coast seaports are investing in infrastructure to handle more traffic when the Panama Canal is expanded in 2014. Will there be a major shift away from West Coast ports as a consequence?
Lanier: Right now, many shippers are expecting a modest rebalancing of cargo, but we’re not anticipating a sudden onslaught of cargo hitting East and Gulf Coast ports. This modest rebalancing will take place gradually.
As of today, many East and Gulf Coast ports have the terminal and rail capacity to manage more freight. However, only a few of these ports have the channel depths to accept much bigger vessels. And, of course, there are congestion issues with road and rail infrastructure along the I-95 corridor, which raise some concerns.
Pisano: That’s a good point, but we still expect to see a shift from the West Coast ports toward all-water services to the Gulf Coast ports, particularly for lower valued products that are less sensitive to longer transit times.
Friedmann: Well, I view it as a mixed bag. West Coast cargo gateways are, in many cases, naturally deep enough to handle the world’s largest container vessels, with virtually unlimited draft available at ports of Los Angeles, Long Beach, Seattle, and Tacoma. There’s also 50 feet in Oakland and 40 feet in Portland. The intermodal rail connections are unsurpassed in providing speed to market from the West Coast ports.
On the other hand, West Coast ports are facing challenges, such as efforts to ban independent owner operator dray truck drivers, and productivity data suggests that cargo loading and unloading simply takes longer at West Coast ports. Many shippers may prefer an all-water route, especially if the time can be cut through the canal.
LM: West Coast ports are facing other challenges as well. As Peter points out, dockside labor is always an issue, and in Southern California, the PierPass expense has been a concern. Will there be a significant loss of cargo as a consequence?
Pisano: Yes. As I mentioned earlier, there will be a significant change in many shipper strategies and cargo diversions due to these issues.
Lanier: I disagree. We’re not expecting large-scale cargo diversions. The business climate for shippers using Southern California can be difficult times, and those ports are more expensive because of PierPass and other fees, but I believe that most of the discretionary cargo that could move easily to other ports, has already left Southern California.
The fact remains that the ports of Los Angeles and Long Beach still have many advantages in terms of speed to destination that can’t be matched by other ports on either the West Coast or the East Coast. In addition, many shippers have invested heavily in distribution warehousing in Southern California, and this legacy investment keeps business in the area.
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About the AuthorPatrick Burnson, Executive Editor Patrick Burnson is executive editor for Logistics Management and Supply Chain Management Review magazines and web sites. Patrick is a widely-published writer and editor who has spent most of his career covering international trade, global logistics, and supply chain management. He lives and works in San Francisco, providing readers with a Pacific Rim perspective on industry trends and forecasts. You can reach him directly at [email protected]
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