Ancient oriental philosophy told us anything that went to extremes would reverse. Container lines’ unexpected recovery in 2010 after a disastrous 2009 is a good example.
The quicker-than-expected recovery of cargo volume in early 2010 produced some unprecedented actions and issues: aggressive rate restoration after $15 billion in collective carrier losses in 2009; shipper complaints to the government about space and equipment shortages; government investigations and establishment of a communications platform for carriers and shippers; and review and study of the Shipping Act.
Carriers idled capacity – more than 1,000 ships totaling 12 percent of global capacity were parked by late 2009 – and then some returned to the market sooner than expected as carriers were anxious to repair the financial damage while pricing services at a profitable level.
Downward pressure on rates returned later in 2010 as ship capacity and equipment availability was more than sufficient. Although part of a typical business cycle, this sort of roller-coaster ride is good for neither carriers nor shippers.
The lessons both sides have learned, along with the communication platform the government helped establish, pave the way for reasonable and stable ship capacity and equipment supply at sustainable freight rates in 2011 and beyond.
The government’s review of Shipping Act reform is good in that it will determine the direction of regulatory oversight two years after the European Union ended carrier antitrust immunity.
Even with antitrust immunity, carriers in trans-Pacific trade over the past 10 years have suffered the lowest return on investment than in any other major trade lane. The big chassis fleets, rising intermodal costs and dramatic trade imbalances are three major reasons. To improve returns and increase overall profit margins, carriers should allow a more efficient third-party handle chassis nationwide and reduce their intermodal involvement.