ISSUE 4 2011


first choice for opinion, policy & insight


Making the right noises, but can he deliver?


Maersk Line CEO, Eivind Kolding said all the right things at June’s TOC conference when he warned the container shipping industry that it urgently needed to raise its game and improve its often abysmal customer service levels. But until words are followed by concrete action to put things right, a certain degree of scepticism is inevitable among shippers.


Some of his ideas are certainly interesting, particularly the suggestion that lines could charge shippers for no-show cargo but, at the same time paying out compensation if cargo is rolled over by the line. But at the moment it’s not clear whether the latter would be universal, or whether it would only apply to so-called ‘premium’ contracts.


If it was only the latter, it would be disappointing. After all, it is precisely to avoid this situation that shippers have paid a premium in the first place! It has to be said that most shippers’ expectations of their


lines are not high at the moment and if Maersk and the rest of the industry can achieve improved reliability, it will be a huge step forward.


More widespread online booking, as suggested by the Maersk CEO, might in practice be a little harder to achieve. Volume shipping contracts tend to be quite complex, especially if they are door to door rather than port to port, although the online option might be attractive to small-volume, more occasional shippers for whom shipping is not a core function. And the current raft of surcharges, bunker adjustment factors and the like would surely have to be dealt with first before online booking can become a reality. Maersk Line, it has to be said, is probably one of the more reliable shipping lines at the moment, though not the cheapest. But even their 50-60% on time delivery performance is hardly a sparkling performance by historical standards. All the statistics and the grumbling


from shippers point to a market deterioration


in the industry’s


performance over the past few years and the move to bigger ships could accentuate this trend. Big ships impose major logistical headaches on ports and those feeding to and from the hub ports by road, rail, inland waterways and short-sea feeder. The sheer volume of containers being shifted on and off these vessels and the need for


fast


turnaround (a ship in port is a cost burden) is a recipe for chaos, mistakes and delays to freight. There is no doubt that the rush to the bottom in the rates area has also accentuated the problem, as shipping lines slow- steam and pull ships on and off rotations in a never-ending effort to try and make revenue match costs. Lack of competition within the industry is also a disincentive to improve.


The irony though is that it is that shipping lines have assumed that shippers want rock-bottom prices, rather than a decent service.


Not quite a world view


It is a pity, perhaps, that while the British Shippers’ Council will be included in the new Global Shipper’s Forum, it will not include the important ESC. There was no major falling out over policy, but rather strategic direction. ESC seemingly felt that it had several very pressing policy issues to deal with, notably road


user charging and rail issues and it felt – with some justification – that it could not devote the necessary time and resources to the GSF, which tends to deal with long-term, very high level strategy – with deliberations running into years in some cases. That said, the GSF will not be the shipping equivalent


of baseball’s so-called ‘World


Series’ (which as everyone knows,


despite its grandiose


title really only includes the US and Canada). It will include Asia, the US, probably other countries from the Americas and of course the UK. Not quite as comprehensive as it could be, but at least a start.


An industry detached from reality?


Optimism is all very well, but there seems to be a mismatch between the economic indicators and the actions of the freight industry.


It seems that it is very much business as usual - more big container ships are being delivered and ordered, liner shipping freight rates are falling still, and yet attempts are being made to increase them with various rate restorations and general rate increases.


Most commentators seem to be thinking that trade volumes will pick up in the second half of this year, after what turned out to be a disappointingly depressed market in the first half of 2011 compared with the bonanza of 2010. In the air freight sector overcapacity is far more modest than in shipping, the economic outlook appears quite up- beat, and airlines and their representatives are giving the impression that they have definitely turned the corner. Fuel costs remain a worry


for many, but so far the price has not moved that much, and fuel surcharges in air freight


and shipping are holding steady


also, after a small


increase at the beginning of June.


All of this appears to ignore the unfolding developments in Greece, with the prospect of yet another major world financial crisis on the horizon. If a financial crisis hits, the consequences for trade and the freight industry could be dire. The Shippers’ Voice is less confident about the prospect of a modest increase in volumes in the second half of this year than some other industry suggest.


commentators Firstly,


still consumer


confidence in North America and Europe remains subdued. Austerity measures in Europe are


putting the lid on


spending power, and of course the Euro crisis and the risk of it spreading beyond Greece to other countries, Portugal, Spain, Eire and even Italy, is hardly


inspiring confidence.


India and China are not immune either. Here inflation is a worry along with increasingly difficult export markets in Europe and the US


consumer .


But even if the world was to avoid a banking crisis, the Euro were to survive and Greece did not default on its debts, can we still be sure that volumes will grow in the rest of this year? There are strong murmurings from the logistics and warehousing sectors that storage facilities are increasingly being filled: goods are coming in but very little is moving out, because consumers aren’t buying. The period leading up to Christmas and then to the Chinese New Year should see some increase in consumer spending and demand for goods; but much of this demand may be supplied from existing


stocks. Except for


those goods which ‘go out of fashion’ quickly, why bring in more when you already have sufficient stock ready to put into the shops? Confidence


is an


empowering thing, but it can also leave you vulnerable if you refuse to acknowledge the threats that exist.


Bigger is not always better


The move to ever more gigantic container ships is another aspect of the industry that has occurred with little, if any input from its customers. Yes, the 18,000teu behemoths are arguably cleaner, more efficient and offer lower per- slot costs than the ships they will displace over the next few years. But are they as effective at delivering your box to where you want it? It’s not


something I recall Maersk or any of the other lines asking their customers. It’s a particularly pertinent issue for shippers in the UK, where the list of direct deep- sea liner calls, and in particular first European port of call services, has been steadily dwindling – and probably given a hefty nudge by the recession, which has hurt this country’s economy particularly


hard.


One wonders how long it will be before the UK ends up like Scandinavia, with no deep-sea Asian calls at all. Feeder services bring their own quality issues, and in any case so far there has been precious little evidence to suggest that such services have been developing to compensate for the dwindling number of direct deep-sea calls.


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