Numbing Numbers

Many of us in the freight transportation industry in general, and the container shipping sector especially, read multiple industry-related publications in an effort to keep up with issues, to try to understand the environment that impacts our daily working lives and, ideally, to help us in our decision making. I’m constantly drawn to numbers because they spin no tales, they have no agenda and they are what they are as long as you know and understand the context.

So on a recent weekend reading binge, I read that global containerized trade fell 0.9 percent last year vs. 2011, to 127 million 20-foot-equivalent units. Some might call such a minuscule decline “a wash,” but I don’t. I connect this information with the knowledge that global containerized capacity grew about 6 percent, depending on what you read, what you believe and how the numbers were calculated. But in simple terms, the additional capacity well exceeded the slight decline in global volume.

Which markets grew and which didn’t? North American exports ratcheted down 4.2 percent, while exports from the Far East slipped 0.9 percent. North American imports inched up 0.9 percent, while imports to the Far East declined 3.3 percent. Exports from northern Europe and the Mediterranean rose 4.9 percent, while imports fell 3.9 percent, a direct reflection of the region’s economic woes. Latin America, the media darling tapped as the world’s next big growth area, saw a 4.9 percent decline in exports and 0.1 percent dip in imports. The biggest gainer was Australia, where exports and imports jumped 9.0 and imports 9.3 percent, respectively.

What I find interesting about these numbers is that, despite global volume declining nearly 1 percent and capacity growing 6 percent last year, carriers apparently succeeded in raising rates, and significantly in some major trades. This is a stark difference from the historical patterns in which rates tumbled any time supply exceeded demand.

We saw that in 2008-09, when global trade shrank, capacity grew and rates fell like a rock. In 2010, carriers did everything they could to create equilibrium by slow-steaming and, more importantly, removing significant capacity for a long stretch of the year, with more than 575 container vessels anchored. They were able to obtain significant rate increases during that time. They also made considerable profits.

A year later, volume grew somewhat, capacity grew somewhat and carriers parked little capacity — fewer than 250 vessels at any one time. The result? Rates and profits dropped.

For 2012, profitability appears to be mixed, with some carriers making money and some losing it. Rates rose, and little capacity was anchored. Unlike historical trends, carriers managed to raise rates despite unfavorable market conditions. 

Does that represent a change in the paradigm? In a sense, 2010 was a paradigm changer; the carriers removed capacity in two ways and created a supply-demand ratio favorable to raising rates and profitability. They appeared to change another paradigm last year by raising rates in some trades without artificially altering the supply-demand ratio.

So what does this tell us? The carriers could be acting in a smarter way, not dropping rates precipitously despite unfavorable market conditions. They also could be acting out of fear — and self-preservation — stemming from their inability to borrow money easily or cheaply. In other words, they have a choice: raise rates and survive or don’t and perish.

I’m anxious to hear what the experts have to say at next week’s TPM Conference in Long Beach as we look down the path in 2013. We know more big vessels are coming. We have to be cautiously optimistic about global trade, but no one should expect trade to outpace capacity growth. That’s a similar scenario to 2012 in many ways, but rates already are up in key trades compared to a year ago, so carriers are off to a better overall start. The European situation is a huge concern for carriers because all of those big, new ships are going there, aren’t they? Something tells me that those in the 10,000-TEU category don’t have to go into the Asia-Europe market.

But when the 18,000-TEU ships start coming on line around midyear, something will have to give. In some ways, we’re already seeing the fallout, with Maersk planning a service deploying 11 7,000-TEU ships from Asia to the U.S. East Coast through the Suez Canal. And the G6 changes that likewise involve East Coast service via the Suez bring even more capacity to that coast.

So maybe carriers are more confident now that a new six-year deal with the International Longshoremen’s Association is virtually complete, with voting formalities to be conclusive. Maybe it’s because carriers want to move fewer high-cost loads by rail across the country. Or perhaps there is no better alternative — or, worse, no alternative at all.

Let’s see what the experts have to say at TPM. 

Gary Ferrulli, a veteran of nearly 40 years in the shipping industry, is director of export carrier relations for non-vessel-operating common carrier Ocean World Lines, a subsidiary of Pacer International. Contact him at mrgtf4811@mindspring.com. The views expressed here are his own and do not necessarily reflect those of OWL.

 

 

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