The Ups and Downs of the Container Shipping Industry

We’re never quite sure here in the Pacific Northwest just when summer will arrive — or whether it will at all. In 2011, Portland’s first 90-degree day didn’t come until the third week in August. Try growing vegetables under conditions like that! But barely four months into 2012, we’ve already had our first 90-degree day, and we hit a May 14 record high of 88. I know we’re not alone when we suggest to visitors that if they don’t like the weather, they should wait five minutes and it will change. Other places say it; we really mean it here.

The weather is famously uncertain. Similarly, our industry, although not lending itself to clear, firm forecasts, moves with the ebb and flow of the seasons: a very busy time leading up to the end-of-year holiday season, followed by a slow time into the early part of each new year; an upward blip before Chinese New Year, followed by a slacking off just before, through and after the celebrations.

So it goes throughout the year, up and down, full ships and ships high in the water. We follow the cycle during any given year, and, as with the broader economy, we are cyclical over longer stretches of time. But just like with the weather, strong, dependable, take-it-to-the-bank predictions are just not part of how our business functions.

Over the decades, we have become accustomed to these patterns, and, though we might complain about our poor overall record of forecasts, we’ve learned to live with the annual and longer-term fluctuations of the trade cycle.

But, to me, it seems something has changed. Here in America our perspective has always been very U.S.-centric. The ups and downs of global trade flows in the Asia-Europe lanes, or intra-Asia, or the north-south routes between Europe or America and Latin America or Africa, never interested us all that much. Our business was here in America, we negotiated our rate and service agreements here, and only in rare exceptions did we engage in major volume business, over extended periods of time, in other trade lanes.

This feels very much like a strategy that may be well past its use-by date. There are many clues that change is in the air, and we all know how difficult change can be. Many things are happening that indicate adjusting only to the U.S. trade cycles won’t be a sufficiently robust approach for the future. Among them are the following:

-What impact will the expanded Panama Canal have? We don’t know the answer to this question, but can be fairly sure of some elements. If all of the ports in the U.S. and Canada talking about expanding capacity actually do it to the extent they say they need, chances are they’ll be, uh, in the same boat as the carriers: There will be too much port capacity.

-What impact would overcapacity among ports and carriers have? I haven’t been keeping track, but I’m reasonably certain new port capacity is being built in places other than North America as well, and we all know the lines aren’t finished building new ships. If we don’t know what the impact of the new Panama Canal will be, we certainly don’t have a clue about the capacity issue. But it sounds like stormy weather to me.

-What will really happen to all of the mega- and super-mega-ships being built and brought into service? We don’t really know this either, do we?

We talk about larger vessels cascading from major east-west trades to smaller east-west trades and still smaller north-south trades. But what happens to all the ships already in those smaller, niche trades? Scrap? Layup? New reefs for tropical fish?

Is there a forecast projecting trade growth great enough to fill all those vessels in all those trades at all those ports? Is there a forecast for the need for new tropical fish reefs?

We think our economy is improving, but it no longer just depends on what we think, or do. Have you looked at U.S. stock indices lately? If business here is so much better, why is the market down several percentage points over the past couple of weeks? Does it have anything to do with Europe? With China? If our market is suffering because Europe’s economy is a basket case, how do we predict what will happen based on what is happening there? What about China? What about the weather?

So wet your index finger, stick it up in the air to check the wind direction; have a sniff for rain; listen for the flutter of the leaves; look closely at the clouds. The weather is about to change. Are you ready for it?

Barry Horowitz is the principal of CMS Consulting Services. Contact him at 503-208-2232 or at barryh@cms-cs.com.
 

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