2008 Annual Report - Ocean Shipping: New Development Strategies Dead Ahead
By Patrick Burnson -- Logistics Management, 7/1/2008
With bunker fuel prices reaching record highs and demand for Asian imports slackening, will North American shippers see a resurgence of hemispheric trade?
“One could make a plausible argument that such an adjustment is merited,” says Paul Bingham, principal of global trade and transportation practice for Global Insight Inc. “Canada is our leading trade partner, and Mexico is third (behind China), so we might see a little more cross-border business in the near-term. That does not mean a big increase in short-sea shipping or inland waterway movements, however. Until the Jones Act is revisited, there isn't much chance of seeing coastwise shuttles or more barges.”
Indeed, the Jones Act—which mandates that all carriers plying domestic trade lanes be American-flagged—has proven to be an instrument vulnerable to abuse. Several vessel operators have recently been investigated by the U.S. Justice Department for price fixing and collusion, and there's been no rush by existing players to introduce new services.
“But on a global scale,” says Bingham, “we are seeing a lot more regional activity designed to shorten supply chains and save ocean carriers cost.”
Trade lanes in Southeast Asia and the Mediterranean are two prominent examples of this trend say analysts, pointing to the fact that carriers can use smaller vessels and spend less money on fuel. “And on the Trans-Pacific and Trans-Atlantic lanes, we are seeing more rationalization and new alliances,” says Bingham.
He, along with other trade analysts, took special note of the fact that Maersk Line broke away from an historic and institutionalized “go-it-alone” attitude to become more collaborative. This happened when the Danish carrier announced the organization of a new Vessel Sharing Agreement (VSA) with Swiss carrier Mediterranean Shipping Company (MSC) and French-based CMA-CGM. This cooperation consists of three strings of five vessels, each between Asia and North America.
Ocean carriers are using a variety of deployment strategies to mitigate higher energy costs and better target emerging markets. Capacity exceeds demand, as usual, but that doesn't mean shippers will get a break on rates. Industry analysts say that in the liner trade there are several ways to keep floating assets on an even keel.
For example, the Grand Alliance (Hapag-Lloyd, MISC, NYK, and Orient Overseas Container Line (OOCL) was still trying to determine in late spring if it would restart its weekly Asia-US West Coast service. Few analysts felt that they would. At the same time, Evergreen was reconfiguring its fixed sailing schedules in an effort to provide West Coast shippers with capacity without asking for more in bunker fuel adjustments.
“What it really comes down to,” says Dave Enberg, a prominent San Francisco-based freight forwarder, “is that major carriers don't care that much about service right now. We have to make deals with NVOs (non-vessel operators) to get any measure of reliability.”
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