It might come as a surprise, but ocean carriers had a pretty good year in 2003.

Although many maritime industry stakeholders had feared the worst when it came time to implement new federal security rules, by most accounts things went rather well. The U.S. Bureau of Customs and Border Protection (CBP) expanded its Container Security Initiative, which places CBP inspectors at foreign ports, to include most of the United States' largest trading partners.

The 24-hour advance manifest rule, which requires carriers to provide detailed shipment data before their vessels sail from a foreign port, wasn't as costly and disruptive as had been predicted. True, carriers had to hire additional staff and reprogram parts of their information systems, but they handled it well. "Carriers had no major problems with the 24-hour rule because it was uniformly applied," says Christopher L. Koch, president and CEO of the World Shipping Council, a carrier group in Washington, D.C. "The costs were significant, but we have not found them to be unreasonable."

Things were looking up on the financial side as well. "The maritime industry has seen historic levels of profitability in the last year or so," says Mark Kadar, a vice president with Boston-based Mercer Management Consulting. Just two of many examples: APL parent NOL Group reported a net profit of $429 million, compared to a net loss of $330 million the previous year. P&O Nedlloyd, meanwhile, battled back from a loss of $206 million in 2002 to a profit of $96 million.

Why did container lines do so well last year? Booming exports from China to North America and Europe helped boost shipment volumes, increase vessel utilization, and level seasonal peaks and valleys. According to the Transpacific Stabilization Agreement, a group of 14 ocean carriers, China now accounts for more than half of all ocean freight moving between the United States and Asia.

But growing trade with China wasn't the only success factor, says Kadar. Carriers continued to look for efficiencies, especially in back-office administration, and rates were up in most markets as carriers sought to make up for years of plunging revenues. "We're sensing a little more discipline in the industry in terms of marketing and pricing," he says. "Some lines are becoming more sophisticated and are not just looking for market share, they're also looking to get the right levels of pricing."

From the carriers' perspective, the right pricing meant boosting rates by hundreds of dollars per container in a bid to restore compensation to levels last seen four years ago. Those increases, added to rising fuel and other surcharges, bumped up shippers' costs by as much as 40 percent in 2003. With operating costs continuing to rise, carriers in both the trans-Pacific and the trans-Atlantic trades have announced plans for similar general rate increases this year.

That might make for another pretty profit picture, but other factors are contributing to a growing sense of foreboding in the industry. For one thing, the trans-Pacific trade is experiencing a chronic container imbalance, with import boxes outnumbering exports 2.5 to one. Swiftly rising charter rates and a worldwide shortage of containers, meanwhile, are plaguing all trade lanes. At the same time, say maritime industry analysts, carriers have so many huge new container ships scheduled for delivery over the next three years that they potentially are looking at increasing capacity by fully one-third if they fail to retire sufficient vessels. Put all of those factors together, says Kadar, and "our feeling is that we're looking at a downturn in 2007."