If the words flying between shippers and carriers are any indication, the annual contract negotiations for trans-Pacific ocean services that begin for many companies this week will be the toughest in years.
Tensions simmering at crowded Asian ports this year boiled over at last week’s Trans-Pacific Maritime Conference as shippers and carriers tossed out accusations in a series of heated exchanges over a market roiled by volatile swings in demand, rates and capacity.
“I’ve never seen shippers so angry. The indications are that you’re starting to hear it, too,” Bjorn Vang Jensen, vice president of global freight and logistics services at Electrolux, told a conference session. “I think you get the message — you have done wrong.”
“You put yourself where you are now,” said another shipper, Pat Moffett, vice president of global logistics and customs compliance at Audiovox Electronics. “You couldn’t agree on a damn thing. Now we’re looking at rate increases every week. Now the rates are being mailed in; they don’t even call . . . This house of cards is falling down.”
Several carrier executives responded, publicly and privately, with equal anger. But for each side, the sharp words suggested relationships were fraying after a year in which rates have taken steep rides down and then up while shipping demand and the supply of capacity have been far out of sync.
The market volatility culminated in recent weeks with reports from Asian shippers that containers bound for the U.S. and Europe were getting “rolled,” or denied booked space on ships, even as rate increases were being announced.
Carriers have remained cautious about returning much of the capacity they idled in 2009, saying they can’t afford to commit yet to the idea that the Asia export demand in January and February goes beyond simple restocking and signals a fundamental economic turnaround. And after losing an estimated $20 billion collectively last year, and watching rates for U.S. imports fall to historic lows in mid-2009, container shipping executives aren’t looking for lessons on market dynamics.
“We are currently operating vessels at below the break-even point at 95 utilization for head-haul,” said Y.M. Kim, president and CEO of Hanjin Shipping. “Not even getting the full GRI this May will bring us back up to profitability.”
Shippers say they are being punished now for decisions carriers made to lower rates, but Kim and others say the carriers cannot afford to compound the mistakes of last year by not acting in 2010.
“It’s very true the industry did it to ourselves,” Kim said. “Carriers need to change a mindset built on market share to a business model that is more sound.”
With containers from major retailers waiting a week or more before the Chinese New Year for loading, however, questions about short-term market conditions seemed less important than long-term customer relations. “The way the carriers are going about this is the problem,” Moffett said. “We’re going to help you dig yourselves out, but maybe you need to throw your shovels away and stop digging yourselves in any deeper.”
Caroline Becquart, liner manager at Mediterranean Shipping, told the shippers she was “very much offended by what you have said . . . You don’t know anything about shipping. I think we deserve respect.”
But the real answers shippers and carriers are looking for are out on the docks, and there is no indication from either side that the frustrations at Asia ports will change without a change in the financial state of carriers.
“There will not be an appreciable increase in trans-Pacific capacity until inbound rates increase,” said Bob Sappio, APL’s senior vice president of Pan-American trade. “When the economics improve, we have the capacity to deploy.”