Many ocean shippers feel that rates should be dropping in 2009 because ocean carriers have ordered so many new vessels. Furthermore, many of the same shippers feel that because carriers have had a couple of good years they’ll be willing to negotiate more forgiving contracts in the near-term for “time-volume” deals. Add to this the fact that conference systems are under attack for anti-competitive pricing, and one might assume that a softening rate structure will ensue.

All wrong, say industry analysts.

It all looked so easy to predict just a year ago. Because more vessels were being placed in the Asia-EU trade, U.S. shippers began booking fewer direct West Coast calls, opting instead for all-water service to the East Coast. Landbridge and warehousing costs notwithstanding, it appeared that this would provide for sustainable savings and more reliable service.

Encouraging news was coming from trading partners in the EU as well, principally over the dismantling of carrier conference systems. Given that rates could not be collectively set, shippers were banking on a free market pricing environment that would “even the playing field.”

Finally, there was the promise that smaller U.S. West Coast ports in Mexico and Canada would help shippers hedge their bets on Pacific Rim distribution, thereby saving still more money in the transpacific trade.

On paper it all adds up, right? Not if it’s a faulty proof, however: “What many shippers fail to realize is that even if a price war among carriers is staged next year, the result is that service levels will decline,” says Stephen Fletcher, commercial director for AXS Marine, a Paris-based shipping consultancy. “Shippers can’t have the cake and eat it, too.”

Other analysts, meanwhile, are painting an even bleaker picture, saying that carriers may cave in on rates initially, but will tag on value-added agreements for recovery of chassis and containers.

Philip Damas, division director of London-based Drewry Supply Chain Advisors, notes that the global container shipping market has decelerated abruptly since the summer, ending a six year boom. “Traffic volumes in the Asia-to-U.S. market have now been flat since late 2007,” he says. “The Asia-Europe market, previously the engine of global market growth, is now growing by only five percent a year, down from 15 percent last year. Furthermore, container volumes at the major Chinese ports are now growing at just 10 percent a year—awful by Chinese growth standards—when the norm for these ports was generally increases of 30 percent every year.”

According to Damas, demand is no longer sufficient to absorb new vessel capacity. Container freight rates have fallen on several key routes, with the notable exception of the transpacific, where carriers have withdrawn substantial capacity. Still, Damas contends that even a 15 percent rate decline “in the current cycle” can be undermined with cost add-ons.

So, from the shipper’s perspective it may yet appear that they have the leverage to pound down rates. But here is where analysts suggest a “counter-cyclical” price increase will take away that margin.

“On the transpacific eastbound route, spot container freight rates this fall are nearly 20 percent higher than last year, despite the market stagnation, partly because of the much higher level of fuel surcharges,” he says.

Another issue for shippers is the risk of failure of ocean carriers. “It’s not as bad as in the air transportation sector, but the downturn in ocean transportation is so serious that casualties are unavoidable, as was the case in 2001,” says Damas.

His advice for shippers? Diversify the carrier base and reduce the risks by buying ocean transportation primarily from large, well-capitalized carriers or players that are part of diversified industrial groups, such as the Japanese multinationals. “Avoid the smaller ocean carriers and those that own few assets,” he advises.

Michael Berzon, president of the shipper consultancy, Mar-Log Inc., suggests that shippers should seek the lowest rates but then offer to collaborate with carriers to hedge their expenses. “The whole issue of re-positioning boxes is something we must address,” he says. “As shippers, we should be working with 3PLs to help move empty containers for outbound voyages, so that exporters can have the space they need without being a burden to the carriers.”

That strategy certainly resonates with Eric Stuben, president of Trans-Americas Logistics Inc. a leading apparel exporter. “The shipping industry is cyclical, and we have all seen the ups and downs,” he says. “That’s why it’s so important to stabilize the business by working with shipper associations for market intelligence.”

Stubins, who is also serving as this year’s president of Shippers of Recycled Textiles Inc. (SORT) differs with analysts like Damas on one major strategic goal, however. “We use NVO’s (non-vessel operators) if we can get a better rate,” he says. “That way, we are creating more options when there’s a sudden shift in the market.”

Berzon, who chairs the National Industrial Transportation League’s (NITL) Ocean Transportation Committee, says his member are partial to the same thinking. “We know that in this volatile industry, shippers must not only have a plan A and a plan B, but also a plan C,” he says. There’s no way we can limit ourselves by using just a handful of carriers.” And that goes for ports as well, he says, observing that new ocean gateways in Mexico and Canada may become more attractive to shippers looking to cut costs on distribution.

A contrary view of the supply-and-demand scenario has been posited by an analyst for Accenture who gave a compelling presentation on “Total Landed Costs” at this year’s Council of Supply Chain Management Professionals’ (CSCMP) annual conference in Denver.

“Shippers should not be seduced by lower ocean carriage rates next year, and they need to develop long-term sourcing strategies based on that factor alone,” says Richard Bergmann, a partner with Accenture who’s based in El Segundo, Calif. “There are many hidden costs associated with global outsourcing, and many of those are coming back to haunt our leading manufacturers.”

Indeed, it is his contention—which is shared by many other analysts—that “near-shoring” and hemispheric trade will be an option shippers will continue to explore. “And there’s a variety of reasons they should,” says Bergmann. “Fuel and energy costs are an obvious issue, but shippers should also reevaluate what they may be saving on labor costs. If they really examine the trend, they’ll see that wages and salaries are getting higher, and productivity is remaining steady. One could argue that the American workforce is much more highly motivated than those overseas.”

The political landscape is changing, too, says Bergmann. He notes that as more regulatory compliance issues surface, shippers will be faced with new challenges. “The whole 'green movement’ is going to have an impact on how goods are sourced in the future,” he says. “If multinationals operating in foreign countries are violating our 'carbon footprint’ laws, or exploiting their workers, they may have trouble next year. Then there’s always the new security laws coming into play. That means another layer of complexity for importers.”