Controlling the Chaos

Call it the “mega” age. The 13,000-TEU-plus vessels that have spawned the formation and expansion of alliances such as the P3, G6 and, most recently, Evergreen’s joining the CKYH are the latest examples of a container shipping industry taking dramatic measures to control its fate.

Those vessels and alliances, of course, are born out of the estimated $15 billion carriers have lost since the 2008-09 recession, their profitability wrung out by a combination of weak economic fundamentals and three years of record deliveries of ships capable of carrying up to 18,600 TEUs.

The cost efficiencies those vessels and alliances offer are the driving force behind an industry that clearly can’t continue to operate as it did in pre-recession days, when strong demand kept carriers so awash in profits that they could virtually order today’s mega-ships at will.

Lost in the transition to today’s prolonged rate weakness is the sea change under way in what drives carriers to make such significant decisions. They are, perhaps for the first time, taking control of their own destinies — be it in the formation or expansion of alliances, integration of efficient mega-ships, slow-steaming or, in the U.S., ditching unprofitable programs such as free provision of chassis. And it’s largely for one reason: Survival of the fittest.

Change, it’s said, never comes easy, and the effects of the changes ocean carriers are implementing are no exception, and will only intensify in the months ahead.

The warning signs are all around: Chassis supply problems in Los Angeles-Long Beach, massive gate delays at New York-New Jersey, Virginia and other ports, and mounting concerns over upcoming talks between the ILWU and waterfront employers that in the best case will lead to sleepless nights and in the worst will make this winter’s gridlock look tame.

It all adds up to a potential nightmare for beneficial cargo owners and other shipper interests that, for the better part of the past five years, have had, if not all the control, a good amount of it. Yes, they still have ultimate control over sourcing, carrier choice, the timing of moving their goods and, for those with the best supply chain strategies, the versatility to shift their cargo between coasts to alleviate risk.

But with carriers in the largest global trades operating fewer, though larger vessels, and limiting service operations through the formation of alliances, there can be no doubt: Shippers are losing some of the control they’ve enjoyed for years.

With the largest ports on the East and West coasts struggling to keep up during the slowest shipping season of the year — admittedly during an incredibly harsh winter — it will only get worse if the West Coast labor talks blow up this summer, just as more mega-vessels cascade onto the trans-Pacific, including through the Suez Canal to the East Coast.

As Gary Ferrulli notes, getting loaded containers out of U.S. terminals is a challenge even under normal circumstances. Throw a labor slowdown or dispute into the mix and what should shippers expect? Several weeks of chaos, Ferrulli says.

Bigger ships, bigger alliances, revolutionary equipment changes, a strengthening economy and potential labor troubles are elements of a potent mix that would wreak havoc on an already fragile U.S. supply chain and filter down to railroads and trucking companies nationwide. Indeed, no one will escape the fallout if that potent mix explodes.

Port productivity — from loading and unloading of vessels to getting the cargo out of the gates and onto the road or rail to destination — has rarely been more in the crosshairs. With 2014 in a state of flux, shippers should prepare for it to get worse before it gets better. 

Contact Chris Brooks at cbrooks@joc.com and follow him on Twitter: @cbrooks_joc.