Squeeze play

As the industry prepares to close the books on a dismal 2008, there's already speculation about which companies will still be standing at the end of 2009.

If anyone has an optimistic prediction about the economy and trade during the coming year, I haven't heard it. Everyone expects the transportation industry to undergo further consolidation, at all levels.

Ocean carriers enter next year's service contract negotiations in a weak position. Shippers like to say they don't want to value their relationships with carriers and don't want to push them to the wall. Many are sincere, but they'll be able to sense the carriers' panic and will do what comes naturally. And if history is any guide, container carriers won't need much of a push -- for decades, they've displayed an unparalleled knack for cutting rates without being asked.

The ranks of shippers also will be thinned. They're feeling squeezed by their suppliers and their customers -- and in some cases, their lenders. Credit remains tight, retail sales are down, and the stronger dollar and weakened demand have taken the steam out of U.S. exports. Some distribution center operators say they see signs that manufacturers are keeping their plants busy by pushing inventory off on customers.

No industry group, however, may be more vulnerable than transportation intermediaries. Freight forwarders and non-vessel-operating common carriers are catching it from all sides. Demand is soft, margins have shrunk, costs have risen and, most ominously of all, hard times are leading some customers to become slow payers.

Forwarders have always had a problem with shippers trying to use them as a bank. The smart forwarders resist it. Some of those that haven't now are ex-forwarders. When customers stretch out their payments, forwarders are placed in a cash-flow bind -- if their names are on the bill of lading, they're obligated to pay the carrier, regardless of whether they've collected from the shipper.

Hermann Ude, chief executive of DHL Global Forwarding, was quoted in the Financial Times this month as saying that many smaller forwarders "will just disappear" as slow payment by cash-strapped customers pushes them over the edge. "I now see a big attempt by many companies to prolong their pay terms," he said. "For us, if a customer does go bust and we still have to pay the carrier, we would survive. But a smaller company would not."

Ude said smaller forwarders also may be exposed by their limited customer bases or geographic coverage. "Many rely on one or two trade lanes," he said. If the strategies of their customers change very quickly, as they are now, they cannot adapt."

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