Annual Review & Outlook 2013: United Arab Agencies

Anil Jay VitaranaMaersk’s Line CEO Nils Andersen’s remarks that A.P. Moller-Maersk will switch its investment focus from shipping to its oil, drilling rig and ports expansion business surprised many. Maersk, after all, is the largest and, to many, the world’s most successful liner shipping.

Some were skeptical; with an order of 20 ships with capacities of 18,500 TEUs under its belt, was Maersk trying to dent the enthusiasm of its competitors from building larger vessels, so that it alone could enjoy the benefits of the economies of scale these behemoths would supply if fully utilized? The realist indicated that Andersen was merely stating a fact: Liner shipping’s return on investment did not warrant a company staking its future in this business.

U.S.-flag carriers’ decision to sell off or scale down the scope of their business primarily to protected domestic trades now may seem a brilliant move. Foreign-flag carriers are falling over one another in serving the U.S. trade lanes and there’s no shortage in investment in ports, terminals and related infrastructure.

When an industry is in turmoil, it usually has someone else to blame. Retailers blame the poor economy, farmers blame bad weather and global warming, and politicians blame others for providing gifts to sections of the electorate!

Who are liner operators to blame? In 2012 carriers imposed aggressive rate increases on the major trade lanes. They stuck for a while and then dissipated — not because shippers refused to pay or held back their shipments. The carriers as usual lost their staying power when a few empty slots opened up and gave the increases right back. Yes, the increases in fuel prices were a factor but slow-steaming and bunker surcharges provided tools to counter the increase. As President Truman said — “The buck stops here” — and there is no one else to blame but ourselves. Where do we go from here?

We could try our hand at another round of rate increases. We could slow the ships to a crawl. We could sell ships and containers and lease them back or we could hire consultants who could show us how we should manage our business. None of these measures are new, but they haven’t solved the industry’s problems.

The industry needs credible leadership. The industry needs competent managers. The industry must provide good customer service so users feel they are getting their money’s worth. Most of all, the industry that has survived for centuries must show it has the staying power over the next 25 years, so financiers lend the carriers the money they need to modernize their fleets, and so ports and terminals can continue to invest in infrastructure to accommodate the big ships.

If the industry believes that a knight in shining armor is coming to its rescue, it’s sadly mistaken.

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