Container ship lines face renewed losses because they have reverted to their habit of emphasizing “price, price, price instead of service, service, service,” said Orient Overseas Container Line’s top U.S. executive.
“We keep as an industry chasing the shadow of the last full box until we bleed ourselves when we need cash the most,” Erxin Yao, president of OOCL (USA), told the annual dinner of the Foreign Commerce Club of New York. “The market will not ship more because our rates are low.”
After last year’s recovery from more than $15 billion in losses in 2009, carrier profitability is slipping amid rising capacity. Alphaliner recently forecast carrier losses of $300 million this year in the trans-Pacific alone.
Yao said carriers are too eager to slash prices to achieve full utilization of ships.
“The marginal utility of even one more empty slot, when all cargo is loaded, is equal to nearly zero. However, our marginal cost is still significant,” he said. “And yet we tend to prefer a business model that equates average cost with marginal cost, which pushes down our average revenue well below cost, all in the name of market share. It creates tremendous financial loss for ourselves and creates enormous instability for the industry.
“What our customers demand is a reliable link in their supply chains to fill the needs of their customers,” Yao said, “not just a slot on a ship.”