More Details Emerge in AlixPartners Ocean Cargo Study

The study recommends that carriers begin divesting non-core assets, exit unprofitable trades, and adopt a laser-like focus on cost control.

By ·

As noted in a recent AlixPartners study, there’s likely be even more disruption in the ocean cargo carrier arena.

For shippers, the study recommends closely monitoring the financial health of the carrier base, not “over-consolidating” the carrier base (so as to have alternatives should markets brighten), considering index-linked contract options and benchmarking rates and service levels via objective third-party resources. For investors, the study recommends paying close attention to the widening chasm between the haves and have-nots, and working with experts to determine which companies have viability and which may not – while also keeping an eye out for attractive asset sales, as many lines may move to divest themselves of assets, especially non-core ones, moving forward.

Meanwhile, for carriers themselves the study recommends divesting non-core assets, exiting unprofitable trades, adopting a laser-like focus on cost control, reassessing all value propositions, and partnering where partnering makes sense.

“For all the challenges facing all the players in the container shipping industry today, there are also a lot of opportunities, including the promise of the much greater profitability that a streamlined, resilient industry might bring, as has been the case in many other industries,” said Lisa Donahue, managing director and global head of Turnaround & Restructuring Services. “But to make the most of those opportunities will take insightful analysis and then firm, decisive action. It’s been done in other industries, and it can be done in this one as well.”

In an exclusive interview, SCMR asked Esben Christensen, director of the business advisory firm for a few more details on supply chain implications.

Supply Chain Management Review: Do you anticipate any sudden shift in rates?

Esben Christensen: AlixPartners’ analysis suggests that the number of parties controlling containerized transportation on critical trades is shrinking through operational alliances and - potentially in the future - through carriers exiting the business. This would have a profound impact on the supply-chain managers who rely on these services, in that the consolidation often brings with it less choice and higher prices. In the longer term, however, the change that’s on the horizon could be largely positive for the carriers who survive with more efficient ships and greater pricing power. In the shorter term, though, shippers should probably expect rates to remain at low levels as the market sorts out all these changes.

SCMR: How supply chain managers mitigate risk?

Christensen: The report suggests that supply-chain managers can mitigate the risks related to financial distress amongst the carriers by closely monitoring the health of their providers, contracting with groups of carriers representing diverse alliances (as opposed to over-consolidating their volume with just a few carriers or alliances), and keeping at least one non-vessel operating common carrier in their provider base. In the shorter term, these important steps should help allow supply-chain managers to proactively direct their volume to healthy and stable partners, sustain a disruption without it reaching catastrophic scale, and tap extra capacity as need dictates to address contingencies. In the longer term, savvy supply-chain managers should probably also consider the merits of index-linked contracts that could protect them against wild price movements. 

SCMR: Finally, will the financial distress in the container shipping industry lead to greater reliance on air cargo, even though it’s more expensive?

Christensen: Probably not in a structural sense. There may be some freight that moves to air to compensate for disruptions, but our study does not anticipate a reversal of the long-term trend of air cargo moving to slower, cheaper modes. Rather, in the longer term it is likely that more container capacity in fewer hands will lead to more reliable sailing schedules, which, in turn, could bite further into the air cargo volume.


About the Author

Patrick Burnson, Executive Editor
Patrick Burnson is executive editor for Logistics Management and Supply Chain Management Review magazines and web sites. Patrick is a widely-published writer and editor who has spent most of his career covering international trade, global logistics, and supply chain management. He lives and works in San Francisco, providing readers with a Pacific Rim perspective on industry trends and forecasts. You can reach him directly at [email protected]

Subscribe to Logistics Management Magazine!

Subscribe today. It's FREE!
Get timely insider information that you can use to better manage your entire logistics operation.
Start your FREE subscription today!

Article Topics

All Topics
Latest Whitepaper
Finding Agility in your Workforce: Are you prepared to meet the next market shift?
Logistics companies need every advantage available to them to be a vendor of choice and remain competitive
Download Today!
From the April 2017 Issue
Our “33rd Annual Salary Survey” reflects more diversity entering the logistics management market, and in marked contrast to 2016, paints a rosier outlook for career placement and advancement.
Is Your Tractor Trailer Yard a Black Hole?
Information Management: Wearables come in for a refit
View More From this Issue
Subscribe to Our Email Newsletter
Sign up today to receive our FREE, weekly email newsletter!
Latest Webcast
Maximize Your LTL Driver Adherence with Real-time Feedback
This webinar shows how companies are using real-time performance data to optimize the scheduling of their city fleets, as well as the routing of their standard, accelerated and time-critical shipments.
Register Today!
EDITORS' PICKS
2017 Salary Survey: Fresh Voices Express Optimism
Our “33rd Annual Salary Survey” reflects more diversity entering the logistics management...
LM Exclusive: Major Modes Join E-commerce Mix
While last mile carriers receive much of the attention, the traditional modal heavyweights are in...

ASEAN Logistics: Building Collectively
While most of the world withdraws inward, Southeast Asia is practicing effective cooperation between...
2017 Rate Outlook: Will the pieces fall into place?
Trade and transport analysts see a turnaround in last year’s negative market outlook, but as...