What Are the Odds?

Politically speaking, this month’s U.S. election appears to leave the country in the same position as before: a Democratic president and Senate and a Republican House of Representatives. It’s been this way for two years, and few issues have been resolved.

President Obama, some pundits say, now may look at his legacy, change his position on some issues and, with the cooperation of Congress, resolve some problems, beginning with the economy.

How might this affect container shipping? Not much at all, most would say. If the economy improves, consumer spending and housing markets could pick up, and imports would increase. But I don’t see Europe resolving its economic woes any time soon, so U.S. exports wouldn’t grow to that region.

Asia’s economy seems to be chugging along, even with alarmists pointing to China’s declining growth — which is finally hitting single digits instead of the double-digit annual growth we’re accustomed to. Experts predict a 4 to 5 percent increase in U.S. exports to Asia.

That the smaller markets of Latin America, the Middle East, the Indian subcontinent and Africa are poised to see double-digit growth, although on much smaller bases, is good news. The same general outlook can be seen worldwide: healthy trade growth in smaller markets, moderate growth to and within Asia, and modest growth to Europe and the U.S.

With that in mind, is there anything else that could influence the outcome of 2013 for container lines? Supply and demand comes to mind, of course. With the exception of the intra-Asia trade, the major markets seem to be at a standstill. The lesser trades are showing healthy growth.

Forecasts call for a 6.5 percent increase in global demand, with capacity growing 8 percent. On their own, that doesn’t seem too bad. But if the forecasts hold true, demand will have grown 29.1 percent while supply will have increased 48.6 percent from 2008 to 2013. Most of that differential came early in the cycle, but it’s there nonetheless, and not getting any better.

So what’s happening? Ocean carriers are returning chartered capacity to owners as the charter contract expires, and that’s not good for vessel owners. And carriers, knowing the more modern and bigger ships (10,000 TEUs and larger) are far more efficient, are bringing those on-line in record numbers. Whatever the circumstance, the overcapacity problem won’t fix itself, and the global markets won’t be a big help any time soon.

So looking to 2013, we see evidence of carriers removing capacity from one major trade in particular, Asia-Europe. Maersk Line has removed more than 20 percent, and the alliances are cutting capacity, too. Traditional winter schedules appear to be taking shape in the trans-Pacific, but it’s difficult to forecast what those numbers are.

The question is: Are these actions temporary to reflect the soft Asia-Europe market and winter trans-Pacific market, or is there something more permanent? We know new tonnage will increase capacity 8 percent in 2013, with many 10,000-plus-TEU ships scheduled to enter the Asia-Europe markets. So where do all of the excess ships eventually go?

Some are simply being returned to the owners, who will try to charter them out, likely at bargain-basement rates. Others will be transferred to other trades — Asia-Latin America and U.S.-Latin America are two likely candidates.

Eventually, it will come down to anchoring some of the oversupply, and it’s that equation that will determine how well the container shipping industry will do in 2013. If carriers take the same basic approach as they did in late 2009 and 2010, they should do well. If they do what they did in 2011 and 2012, trouble could await.

So what does this have to do with the outcome of the presidential election? Not much. But there is a similarity to how it will turn out. If the politicians take the best course of action for the country, things will turn out relatively well. If ocean carrier management takes the best course of action, the industry will do well. Anyone want to make odds on either of those two scenarios happening?  

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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