Ocean Outlook: Rough seas ahead (page 3)

-- Logistics Management, 2/1/2005

Page 3 of 3

Global Outlook

In last year's "State of Logistics Report," the Council of Supply Chain Management Professionals reported an average 40-percent rate increase for eastbound ocean shipments in 2003, and forecast a 20-percent boost in 2004. The report, authored by economist Rosalyn Wilson, credits an expansion of global trade and production, an ongoing shift of manufacturing to Asia, and a congested and overburdened transportation system with helping to drive up those costs. By some estimates, it now costs 5 to 15 percent more to move products by ocean than it did in 2002.

On all three major shipping lanes, Brennan says, capacity will likely be "very tight" in 2005, with carriers implementing rate increases of 8 to 25 percent, depending on the lane. Whether port-congestion problems are resolved by peak season remains to be seen, he adds. "Importers who value service frequency, reliable transit times, and manageable cost increases will likely face challenges across each of these areas in the coming year," Brennan forecasts.

Yet there may be a light at the end of the tunnel, says Manny Hontoria, a principal at Mercer Management, who calls 2005 a "crossroads year" for the ocean shipping industry. With capacity problems becoming significant in several trade lanes, ocean carriers, ports, and inland carriers may be forced to add more ships, intermodal facilities, and on-dock improvements to keep up with demand. Those solutions take time to plan and implement, but time is running out, he suggests.

"The excess slack that existed in the system has finally been eaten up," says Hontoria. "Going forward, we see the industry escalating its infrastructure investments very rapidly."

Slower Growth Dead Ahead

	Deep Sea Ocean Freight	Crude Materials	Industrial Commodities Less Energy
2002	7.9%	-10.6%	-0.1%
2003	18.3	25.1	1.5
2004	2.4	16.9	4.3
2005	1.3	-0.5	3.3
Source: Global Insight, Inc.