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A year of change - if we want it to be


From the liner shipping statistics and headlines of the past few weeks, one would be forgiven for thinking that 2011 looks like a repeat of previous years. Rising fuel prices and bunker surcharges (usually referred to as BAFs); currency instability resulting in volatile currency adjustment factors; capacity increasing faster than volumes, leading to more idle ships; more slow steaming; and shippers wondering if they will be able to find sufficient capacity or the range of services they need. At the same time, the traditional round of general rate increases has been announced, and again the fate of these rests on whether the lines can take enough capacity out of the system to balance with or slightly under-supply the demand for space. Meanwhile, security continues to add to everyone’s costs, this time in the shape of further advanced cargo data submissions to the customs authorities of EU Member States. And don’t forget, a continued rise in piracy in certain parts of the world, necessitating increased insurance premiums and contingency plans (more security precautions, route deviations and so forth). All of which the shipper will end


US shipping reform - outlook


uncertain The outlook for the US Ocean Shipping Reform Bill looks uncertain, following the change in the political complexion of the US Senate and House of Representatives in the recent elections. Moreover, one of the Bill’s two instigators, Congressman Oberstar, has lost his seat. The Bill may eventually re-emerge in a revised form, but it could be somewhat overtaken by the Federal Maritime Commission’s moves to take a greater interest in the activities and practices of the liner shipping community. They could ask more probing questions of shipping alliances, and look closely at the practice and effect of slow steaming and


up paying for in one way or another. So 2011 looks set, therefore, to


see more cargo being rolled over or bookings cancelled; shippers will maintain they cannot provide the forecasts some lines are now suggesting they need to better balance supply of capacity with demand; and perhaps we will see further disputes over breaches of contract between shippers and carriers, such as we saw last year between Argos and Maersk Line. Then we may see further signs of equipment shortages, as happened last summer in some parts of the world, and uncertainty over rates: will they go up or down? Will they be lifted by the Chinese New Year, only to fall thereafter, and will the European and US economies be strong enough, with consumer confidence and spending power returning, to create a half-decent peak period next summer and into autumn and early winter? It’s the somewhat depressing


circle of events and continuing uncertainty which we have all seen before; yet is there anything that can be done to break this seemingly eternal cycle? I have long said in articles such as these that the only way to break it is through dialogue between


the way they manage capacity to ensure that they are not anti-competitive. These efforts to appear to be more proactive may, to the cynic, simply be an attempt to stave off more legislative intervention in an industry where the FMC has often been suspected of being a little too cosy; or else it is their way of defending their ground, marking their territory and showing doubters that they do have an independent mind and are far from being a redundant organisation (as some commentators have suggested in the past). Matters aren’t made


any clearer by the lack of transparency in the entire US lobbying and legislative process. The health lobby may have seen off the ‘smoke-filled rooms’ of yesteryear but much lobbying is carried out well away from public gaze in the US.


shippers, carriers and other key parties in the chain, all within an environment of competition. The regulatory moves in the EU two years ago gave European shippers the competitive environment, in that lines cannot collude to manipulate price or prevent competition in the trades. What we don’t have yet is the dialogue. One of the reasons for this is


a matter of trust: neither side - shippers or carriers - quite trusts the other to be open-minded and understanding of each other’s position in any debates over what should be done to improve stability and efficiency of liner services. The fear is that both sides will blame each other, or try to engineer their own agendas for change or else to maintain the status quo. It is a very real problem, and one which will be difficult to resolve. On the other side of the Atlantic, there seems to be a reverse of this situation: resolution to have more dialogue but, as yet, little sign of any regulatory change to remove anti-trust immunity for liner shipping groupings, such as the TSA. The US Federal Maritime Commission (FMC) announced plans in December to form


two working groups. The first is an International Ocean Transportation Working Group, which will focus on booking cancellations and rolling cargo; improving shipper forecasting and minimum quantity estimates; export capacity forecasting; and other ways to improve the shipper-carrier


relationship,


including collaboration on major supply chain changes. The second working group, will


focus on container availability for US exporters. The Commission also voted in December to move forward with a project focused on helping small exporters and importers improve their service contracting practices through education and outreach. The project will include a web-based educational tool. Without the regulatory changes, much of this could end up being mere window- dressing: there will be nothing to make anyone change their ways if they don’t want to. I am not advocating an FMC- like engagement in the EU, but neither would I discount any comparable development. To me, the real crux of the


matter is whether the carriers and shippers actually want change. I believe many shippers want change, but do the carriers?


Gloomy prognosis


I hate to say this, but the economic pessimists appear to have been vindicated in their assessment that last year’s shipping boom would be short- lived. All the signs are that 2011 is not going to be a great year for trade, though there could be some pick-up towards the end. The shipping lines could


react by withdrawing capacity, or steaming even more slowly than they already are - if that’s possible without coming to a complete halt. The shortage of containers, which has still not been fully corrected, may also create a de facto capacity reduction. As ever, it all depends on


the wider economy. Some of the worries in the EU may have eased, but inflation is the new concern and this, together with rising unemployment, could


start to seriously erode spending power both in Europe and North America. The New World Alliance has


said that it will temporarily reduce capacity on some Trans- Pacific services to coincide with Lunar New Year factory shutdowns in Asia but will review demand and capacity again well before the next peak shipping season. This year’s factory closures are though expected to be longer than usual. Perhaps there is some significance in the fact that the shipping lines - not known for their willingness to communicate with the press - have taken the trouble to issue a statement. Is there a genuine lack of volume, or are the lines trying to put pressure on shippers ahead of the renewal of many contracts in about four months’ time?


Are contracts


inevitable? AP Moller-Maersk line reached a rapid agreement with its customer Argos in its dispute over shipping charges, the retailer having accused the shipping line of reneging on an agreement to ship containers from Far East to the UK. (FBJ issue 3 2010, page 3). But the episode has raised the profile of contracts in shipping. How receptive are we as an industry to the idea of more legally binding agreements between lines and their customers? At any one time, one side or the other can be expected to be in favour, the other less so - depending on whether shipping capacity is in short supply or whether it is a shipper’s market. On balance though, resistance to the idea of binding contracts is gradually being whittled away. Don’t expect it to be an overnight accomplishment though.


Dr Andrew Traill White Paper - a good read


The EU Transport White Paper is running late, but it should be worth waiting for when it finally emerges, possibly in Spring. We can safely say that it will have a lot to say about cleaner fuels in shipping and rail, which will give even greater impetus to efforts to produce better data on the environmental effects of different modes of transport. Shipping pollution is a particular cause for concern, because at


the moment very few ships can comply with the environmentalists’ aspirations to almost completely eliminate sulphur from marine diesel fuel. It will be quite a while before there is a ready supply of low-sulphur marine diesel and the only alternative, scrubbers - the ones that clean exhausts, not the other sort - would cost a fortune to install. While there is evidence of heavy concentrations of sulphur dioxide


around the main shipping lanes of Europe, if the Commission moves too heavily against shipping all it will achieve is diversion of traffic to road, which would then see CO2 emissions spiralling into the stratosphere - literally and metaphorically. The White Paper is also likely to contain provisions to move


traffic off roads onto rail and barge, especially for longer-distance journeys from seaports. However, this will require heavy investment in infrastructure, which will take not only money, but time, and the Commission is in danger of plunging into a reality gap. One way of cutting transport emissions at a stroke would be to


allow longer, heavier vehicles - on some of the main trunk roads, and longer heavier trains on the track that can carry them safely. Some people may look askance at 25-metre truck-trailer combinations, but why not allow them to be used while the alternative infrastructure is being developed? They may look frightening to some, but trials have shown them to be safe and much more efficient and far kinder to the environment. It’s the same principle as employing bigger ships and planes – we don’t argue about the economic and environmental logic of that, so why do people question it for trucks operating on the right type of trunk road, capable of handling them and other road users? Unconnected with the White Paper, but very pertinent to shippers,


are other areas which should also be explored: such as the ‘grey box’ idea recently floated by the European Shipper’s Council as a means of boosting container utilisation rates, improving overall efficiency in shipping and the supply chain and reduce emissions repositioning empty boxes. I’m not saying one way or another that it is a workable concept for certain, but that’s the point: we won’t know if we don’t explore these issues fully in the context of the world today. It also symbolises how we as shippers and shippers’ representatives are willing to explore new ideas with anyone else who is also willing and eager to find solutions to modern day challenges faced by shippers, carriers, and their supply chains.


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