Change Is A-Comin’

When the International Longshoremen’s Association and United States Maritime Alliance agreed to extend their existing contract through Feb. 6, many East and Gulf Coast shipping interests thought their labor issues were behind them. After all, the big stumbling block — royalties — had been settled.

Not so much. Post-holiday meetings over work issues ended abruptly during the first week of January when the ILA walked out. Talks are continuing, however, so let’s hope they can reach an agreement so that we can all have something else to talk about.

On a related note, studies are taking place about U.S. West Coast terminals, specifically the “terminals of the future.” When signing contracts today for longer-term terminal agreements, operators have to think about efficiency and automation. But how do you do that with a labor environment stuck in the 1970s?

Sure, unions want to protect jobs, benefits and dues, but at some point they have to get on board with increased productivity. At least one West Coast terminal does it, and the rest must do the same. Compromise makes sense, but logic and common sense never seem to enter the picture. It’s hard to accept job losses, but it’s equally difficult to accept running a business inefficiently.

Likewise, office clerical workers concerned with the transfer of jobs at some point must realize that being paid double or triple what the same work pays 25 miles away isn’t conducive to keeping the headcount up.

On the business side, London-based research analyst Container Trades Statistics released a report saying global trade in 2012 actually declined 1 percent from 2011. It might just be 1 percent, but even that has to catch the eye of carriers that have new capacity entering the market this year and in 2014. Forecasts call for a 4 to 6 percent gain in global trade for 2013, but that’s in line with what the 2012 forecasts were.

Some pundits say Maersk Line may be concerned because its “Triple E” vessels are scheduled for delivery this year. Recognizing that the 18,000-TEU ships will be deployed in the Asia-Europe trade, they wonder if the vessels will compromise the “Daily Maersk” service because the new ships are so much bigger. Will Maersk have to take capacity out to compensate for the additional capacity? Don’t bet on it. Indeed, watch for a version of the Daily Maersk in the trans-Pacific. When you have all of those vessels at your disposal and understand the marketing value on the retail side of the eastbound trans-Pacific, and see other carriers taking delivery of new ships, too, it’s hard not to be defensive and offensive at the same time.

And that brings me to my premise that there will be 10 carriers that control 90 percent of the global container markets by 2020. Today the Top 10 control about 61 percent of the global market. But there are signs that some of those not in the Top 10 — and even some that are — realize there’s a vast difference between the Top 3 and the next seven to 10, and to remain relevant, they have to get closer to the top.

So what do we see in the news recently? That Hamburg Sud and Hapag-Lloyd are again talking about a merger. Previous attempts at what appears to be a good match from a market standpoint haven’t worked out, allegedly because of personalities. Time has a way of removing that issue, partially at least, and now the carriers are apparently talking.

It makes great sense — there’s little overlap in markets, and strengths would join strength. There would be serious cost-reduction opportunities and, combined, they would get closer to the Top 3. Although there are recognized personality issues, the two Germany-based companies should have few of the cultural issues that Hanjin Shipping faced when it acquire Senator Line.

In a similar situation, executives at MOL have again spoken out about the three Japanese lines merging. Here are three carriers — MOL, “K” Line and NYK Line — with obvious economic stresses that could create a very relevant entity with both size and reduced costs. It makes sense in many ways, but those who know and understand Japan well tell me it isn’t that easy.

These aren’t the only apparent opportunities — the Korean carriers could do something, or the Taiwanese. One with no apparent natural partner, United Arab Shipping Co., is talking about ordering 18,000-TEU vessels. UASC has been part of several joint services over the years, but they usually don’t last long. It’s hard to see the carrier operating alone for an extended period, but, again, it has no apparent natural partners.

That’s part of what’s fun about this business: guessing what’s next.

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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