One of the more compelling moments among many at this month’s TPM conference came not from the stage, but from the audience.
“Is there any hope for this industry?” That question came during the Q&A session that followed an hour-long fusillade on the dire state of the container shipping industry from Ron Widdows, CEO of shipowner and lessor Rickmers Group and its Rickmers Linie operating unit.
“Close your eyes and think of the discussion we’ve heard for the last 10 years – that the industry is busted,” Widdows responded. “Unless the people who are running the companies get to the point where they can price the product at a level where they can make money, then we will stay at the same rate levels for years.”
Widdows, an outspoken industry critic even in his previous roles as CEO of APL and then president of its parent company NOL, clearly is feeling unshackled, relieved to be removed from an industry that has lost control over pricing – and not likely to retain it anytime soon, given the significant capacity that has drenched the market in a lukewarm economic recovery.
“You can’t see it out there with a Hubble telescope because it’s way out there, so for all this jazz about trade growth and demand growth, people are going to build ships because they have to in order to lower their costs,” he said.
It is, of course, that lack of control over pricing that has carriers focused on the only recourse they have to remain profitable: costs. It’s a focus that, like the 8,000- to 10,000-TEU ships shifting to the trans-Pacific and other trades that can’t handle the even larger vessels entering the Asia-Europe market, is cascading throughout the supply chain, be it through carriers’ exit from the chassis business to their formation of mega-alliances such as the P3 Network, G6 and expanding CKYHE.
The chassis situation underscores the severe ramifications filtering down to U.S. terminals at New York-New Jersey; Norfolk, Va.; and Los Angeles-Long Beach, where a shortage of available equipment is contributing to hours-long truck lines at gates.
Meanwhile, carriers say the key differentiator in this low-rate environment – service – is instilling little confidence among their shipper customers. Adam Hall, Dollar General’s senior director of international logistics, said at TPM that the formation or expansion of alliances doesn’t foster improved overall reliability.
That’s clearly no ringing endorsement for an industry whose vessels have struggled to arrive on time in recent months, according to analyses from SeaIntel and Drewry. Indeed, the opportunities for carriers to cancel specific sailings when they perceive load factors to be insufficient will only increase, Hall said.
If there is hope for container carriers, and the shippers they serve, it might be found by looking to the heavens, or at least to the skies. It wasn’t so long ago, after all, that international airlines – like their container shipping brethren – were awash in too much capacity, too many planes flying half-full and billions of dollars in losses. But, as Widdows pointed out, the airlines figured out how to manage their assets. The result? When, he asked, was the last time you flew on a plane that wasn’t full?
“I laid up 20 percent of my capacity in 2010,” he said, referencing the most profitable year for the industry in nearly a decade. “It could be tomorrow that [carriers] take out excess capacity.”
Carriers, in other words, have the ability to change the pricing dynamic. Like their airline brethren, they have the way. Problem is, they lack the will.