Blaming Game

When Maersk Line Chief Operating Officer Marcus Engelstoft opened a shipping conference in London by saying a look back to assess the industry’s economic pain over the past two years was “not a blame game,” it inevitably set off, well, a blame game.

So who to blame?

General politeness precluded finger-pointing in the room amid carriers, shippers and terminal operators. Engelstoft said freight forwarders aren’t to blame, although some carrier executives privately were not nearly so forgiving.

Gerry Wang, CEO of container ship lessor Seaspan doesn’t have any patience with hand-wringing uncertainty, however.

“Who was to blame for the crisis?” he asked from the podium at the Containerisation International Global Liner Shipping Conference. “It was the banks.”

Banks, he said, had made getting financing for purchases of container vessels as easy as buying a cup of coffee at Starbucks.

But there’s more blame to go around, and Wang says some of the blame for the looming problem ocean carriers face with fat order books for ships now rests with the shipbuilders who have erected huge hurdles to cancelling orders.

At upwards of $150 million apiece, container ships are expensive enough, but they’re an especially steep investment because carriers must order several at a time to start a regular service string. Moreover, the shipyards in South Korea that dominate the shipbuilding trade charge a 30 percent down payment and include heavy penalties for cancellations that make dropping an order deeply painful.

That contrasts with the airline industry, where carriers put in less money upfront and make payments during an aircraft’s production. Cancellations with Boeing and Airbus carry penalties, but airlines also treat orders and the production slots they have with the manufacturers as a kind of currency. When FedEx recently trumpeted the arrival of a 777 freighter for expanded Asia service, the company didn’t mention the abrupt arrival was actually an aircraft originally put together for Air France.

“The airline business is much more flexible, much more customer driven,” said Wang.

The shipyards, he said, “have been stubborn and difficult in their ability to hold their ground. We have not seen the massive cancellations you would have expected. The governments are there to prop up the major shipyards, in my opinion.”

What would it take for the shipyards to change their approach? Said Wang, “I wish you could ask this question of our Korean friends. I’m pretty sure they would kill you.”

Luckily, they were not in the room.
 

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