As the end of 2013 nears, many of us are being asked to forecast what will happen in 2014 as we prepare our budgets. What does global trade growth look like? What about individual trades? Where are carrier rates going?
Wrap that up in a package and send it to the decision-makers, and a week or so later a message will come down saying, “OK, good job,” or, “We have to reduce those costs another $200 a container to make our corporate goals, so …” I don’t remember too many of the former.
In my 30-plus years of being deeply involved in budgets, I’ve had to look backward to look forward — sometimes looking at a 10-year history to get trends. At one time, I could observe a seven-year cycle from bottom to top and back to the bottom. Those days are gone. Events occur much faster, and the ride up and down is dramatic and jarring. So let’s spend a few moments looking at 2013 and see if there’s anything that might tell us where 2014 is going.
The first thing I look at is global trade growth. As expected, there was a relatively small increase in 2013 volumes overall, with the major east-west trades impacted by the European and U.S. economies. Intra-Asia has had its usual good growth — not the double digits we’re used to, but nice gains nonetheless on what is a large base.
It’s what didn’t happen that impacted 2013 the most: a peak season. Although carriers tried to time general rate increases with the peak season, the lack of one kept them from taking advantage as they have in the past, when space and equipment became scarce.
Container lines continued to take delivery of new ships, most of them capable of carrying 10,000 TEUs or more, creating overcapacity that pressured rates throughout the year. In an attempt to salvage what they could, carriers tried to impose GRIs multiple times in the trans-Pacific and Asia-Europe markets, only to lower the rates on an almost weekly basis.
They also used skipped sailings and employed super-slow-steaming in an attempt to prop up the market, tighten space and equipment, and keep rates up. It didn’t work.
With these things in mind, how might we look at 2013? Shippers for the most part were treated to reasonable service contract levels, although spats occurred and some longtime relationships were severed. For shippers who used the “commit as little as possible and ride the spot market wave,” things worked out pretty well. For those who committed larger percentages, the spot market likely crossed the fixed-rate plane a few times, but I’m not sure you had a bad outcome.
It may have been the small and midsize shippers who benefited the most. Ocean carriers have virtually ignored the smaller guys for years because their 25 to 200 loads a month weren’t large enough targets for the carriers’ marketing plans.
But it suddenly dawned on the carriers that they couldn’t fill their ships with traditional approaches, so they wooed many of these midsize companies with space and equipment guarantees and attractive rates this year. More than a few large shippers would be surprised to see the rate levels their smaller counterparts are getting today.
What about my industry, the NVOs? If you like excitement in terms of rate volatility, this was your year. Add a slower-growing global market, more competition from other NVOs and the carriers themselves in some market segments, and it was a challenging year. For the first time in a while, the percentage of global trade moved by NVOs fell in 2013, a substantive change on the trends of the past 15 to 18 years.
But being a non-asset-based industry helps tremendously in dealing with these ups and downs. The ability to flex resources in short timeframes while maintaining service offerings that asset-based service providers can’t manage continues regardless of conditions. Resiliency has been and continues to be the hallmark of NVOs.
Finally, the ocean carriers: 2013 was the second consecutive bad year, and worse than 2012, because only a few will make money this year. It’s also becoming clearer that being in the top tier of the ocean carrier industry means a tremendous investment in vessels and equipment, and while some started that investment in 2005, others are just joining the party.
That leaves a significant gap in the cost of doing business, which is why fewer are making money. The problem is while they try to close the gap, the global market remains in a slow growth mode, meaning their closing the gap actually exacerbates the supply-demand ratio, keeping or creating more pressure on rates. It’s a Catch-22.
So I’d say carriers as a whole are in trouble, and some are in serious trouble — the late-to-the-gamers that have no national treasure to fall back on and non-operating owners that will find chartered vessels returned and new charter prices well below what’s required to remain viable.
This may open doors to opportunists, but one has to wonder: With new ships coming and with global trade barely moving upward, are there really opportunities?
Gary Ferrulli, a 40-year shipping industry veteran, is director ocean product for non-vessel-operating common carrier Ocean World Lines, a subsidiary of Pacer International. Contact him at firstname.lastname@example.org. The views expressed here are his own and do not necessarily reflect those of OWL.