European Shippers' Council

European Shippers' Council

Shippers will need to deal with some important risks in 2012 as the container liner industry comes off another disastrous year. The huge increase in capacity and vessel ordering provided sufficient ingredients to create negative market sentiment and kickstarted another round of market share-chasing with pricing as a weapon. Shippers know too well where this leads: temporary reduction in prices, followed by damaging service cuts, new surcharges and general rate increases. Add the eurozone debt crisis, slow U.S. growth, China’s stalling trade with the U.S., widening interest rate spreads and high fuel prices, and you have the perfect mix of negatives.

This year, therefore, could be fatal for some carriers, bringing some risks for shippers. Nobody wants to put all their eggs in one basket. Shippers will spread their freight contracts around, but fewer options may make them more susceptible to risk. Putting significant proportions of freight with one of the mega-carriers could be less risky than putting it with smaller ones in terms of the financial risk, of course, but what if that mega-carrier can’t deliver good and consistently reliable service levels? What if the service gets poorer and poorer, with longer lead times, higher prices — volatile prices? It will force shippers to think carefully about reducing the risks this can bring.

This is why shippers should, and in many cases do, increasingly place so much emphasis on good reliable services that are predictable, enable better planning of the supply chain, enable optimum inventory levels to be smaller and are less costly.

Looking to developments in Europe: the European Commission’s current policies toward revitalizing the appeal to shippers of inland waterways and short-sea/coastal shipping will similarly contribute to creating more efficient and reliable alternatives to trucking. But more regulation on environment and security may risk wrapping the industry in “green and red tape.”

The gains being made in short-sea and coastal shipping, in particular in and around the English Channel, North Sea and Baltic Sea, also are at risk of being seriously compromised if International Maritime Organization rules on low-sulfur content of marine fuels are introduced too hastily.