United Arab Agencies

United Arab Agencies

Are container liner operators an endangered species? Speculation is rife that the merger mania is going to engulf the industry. On the heels of the rumor that the three Japanese carriers may merge into one container unit, comes news that two other top 20 carriers — Zim and CSAV may consider going down that path, but not with each other.

Consolidation was on everyone's lips after the 2009 debacle but the uplift in 2010 quickly pushed the guessing game to the background. It is highly unlikely, however, the good luck charm of 2010 will repeat itself in 2012. Ultra-large container ship supplies were in its infancy in 2010 but will be in high gear in 2012 and the ensuing years. Even if world trade volumes increase by 10 percent, it would not be sufficient to make a dent in the oversupply of container vessel capacity.

The oversupply is not necessarily the root cause of the carriers' woes. It is the inability to maintain a semblance of rate stability, spawned by the carriers' desire to gain market share, or worse, to push out the weaklings from a trade route. A secondary but yet important factor is also at play. This is the fierce competition and market share aspirations of the third-party logistics companies. The asset-based carriers, sometimes knowingly and sometimes unwittingly, become participants in the battles of the non-asset based carriers to the detriment of their own revenue.

Container liner operators have a crisis in qualified and experienced manpower in their front lines. Skilled executives are abandoning the asset-based carriers in droves for greater job security and remuneration within the 3PL community. The weaknesses in their front lines leaves container operators vulnerable and with antitrust concerns often hindering the verification of authenticity of competitor rates, they tend to cave in quickly to those with superior negotiating skills.

If container liner operators are consumed by their obsession to build bigger vessels and not place the same emphasis on developing and strengthening their frontline manpower, their very survival will be at stake.

2012 will not be merciful for the weak.