Ocean Outlook: Rough seas ahead (page 2)

-- Logistics Management, 2/1/2005

Page 2 of 3

Europe: The Euro Effect

Importing fine wines and spirits from Europe and Latin America to the United States via ocean carrier has gotten trickier over the last year, says Geoffrey Giovanetti, managing director of the Wine and Spirits Shippers Association in Reston, Va. Space is tight but available on inbound ships from Europe, but Giovanetti says rate increases have eaten into importers' profits while congestion and capacity restraints have forced many companies to hold more inventory than they'd like.

"The Europe route hasn't been easy, but we're in a much better position to have our space needs met than someone who is importing from Asia," says Giovanetti. As for pricing, his group agreed to rates with most of its carriers in March 2004, and expects an increase when it comes time to renegotiate.

Giovanetti doesn't foresee much improvement in capacity, which could mean paying higher rates for less-than-ideal service. In return for the higher rates, he would like to see carriers offer better customer service in the upcoming year. "We don't mind calling an '800' number and talking to someone in India or China," he says, "but we'd like to talk to someone who knows what's happening, and who can zero in on our problem and help solve it."

On the outbound side, Global Insight's Bingham forecasts that U.S. exports to Europe will get a boost in 2005 from the continued weakness in the dollar versus the euro, making U.S. exports increasingly competitive in European markets. Kadar, meanwhile, forecasts that trade growth on that lane will be about 6 to 7 percent.

"As long as China pegs its currency to the dollar, U.S. exporters will see no change in their competitive position against Chinese exporters for [European] markets," says Bingham. But what helps U.S. exporters will hurt their European counterparts, he adds. "European manufacturers will continue to suffer from the strength of the euro in trying to compete in the U.S. market, dampening westbound trans-Atlantic growth," Bingham predicts.

Latin America: Even Keel

U.S.-Latin America trade volumes will remain solid in 2005, says James Brennan, a partner at Concord, Mass.-based consultants Norbridge Inc. Problems in that trade won't reach Asia-like levels, he says, but shippers still will face some measure of congestion, rate, and capacity problems.

So far, West Coast port congestion hasn't greatly affected shippers on this route. But that could change if shippers and carriers seeking relief from trans-Pacific holdups shift in large numbers to East Coast ports. During peak times, that could have a significant impact on port capacity on the East Coast, Brennan warns.

APL's Bowe calls the flow of goods coming into the United States from South America "strong," and anticipates similar activity levels in 2005. "There's been talk of new services and extra capacity in that lane," he says, "although we anticipate that the industry will be at a pretty highly utilized level there, particularly on the northbound route, at least through 2005."

With its ships traversing the waters between the United States and the Caribbean, Mexico, and Central America, Crowley Liner Services sees a slightly different side of North-South commerce. Rob Clapp, director of pricing and yield management for the carrier's Latin America division, thinks this year will be relatively quiet in the U.S.-Central America trade. No major carriers are expected to enter or exit that lane and no new tonnage is expected to be introduced in the near term, despite forecasts of 3- to 5-percent market growth, he adds.

Shippers can therefore anticipate conditions will remain essentially the same in the first quarter of 2005 as they were late last year, says Clapp. But ocean carriers on this route will most likely have to pay higher fees for bunker fuels and trucking services, and will look to shippers to help cover those additional costs, he predicts. Continued...

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