Crisis Planning

Crisis Planning

Potential flashpoints are on the horizon in 2011, whether from the CSA 2010 driver safety regulation or the container lines’ hoped-for withdrawal from chassis services. But with a still-sputtering U.S. economy showing few signs of an immediate turnaround, it’s difficult to imagine these issues morphing into full-fledged crises.

Crises in transportation tend to be triggered by too much volume against inadequate capacity, irrespective of mode. Here are three issues often mentioned, and how they are likely to play out next year.

-- No blowup in chassis: Initial ocean carrier moves to withdraw from providing chassis in the U.S. market have nurtured a sense of an impending clash on the docks.

Stoking fears is one scenario that would have longshore unions losing chassis maintenance and repair work, a possibility that prompted International Longshoremen’s Association official Harold Daggett to tell The Journal of Commerce this month that carriers have “declared war with me, and I’m going after all of them.”

But have carriers really declared war on longshore workers? Do they view a clash with longshore labor as an unavoidable reality of withdrawing from chassis? Hardly.

Carriers are not known for picking fights with longshoremen, and don’t want to here. That is partly why two carrier CEOs I spoke with recently both said the chassis transition could take years. Longshore unions might have a long-term concern that fewer chassis might be needed if shippers have to foot more of the bill and make more efficient use of the equipment, but change in the hugely inefficient use of this asset in the supply chain over time is inevitable.

The whole issue might be moot if carriers hesitate to withdraw from chassis in the largest port markets. Carriers will have to make the leap in reducing service to shippers not knowing if competitors will follow. That alone makes any industrywide chassis transition far from a done deal.

-- No spike in ocean rates in 2011: Some Wall Street analysts predict a sharp increase in ocean rates because of weakening ship deliveries next year, but carrier CEOs are discounting this possibility. They believe a healthy 8 to 9 percent of new capacity will enter the global market in 2011, mirroring expected volume growth.

It is also likely that ocean carriers, following the searing experience of 2009, will use tools at their disposal to foster equilibrium in supply and demand and avoid triggering the volatility that sent rates spiraling upward earlier this year.

As Mike White, president for North America at Maersk Line, said at the Intermodal Expo/Transcomp event earlier this month, carriers will make greater use of “extra loaders” or single sailings outside of scheduled strings, to actively manage capacity. “I think they (carriers) have become more agile in being able to remove tonnage when there is a slack season, and I think that will keep more stability in rates.”

The capacity squeeze early this year could have ended antitrust immunity in the U.S., which most carriers don’t want to see. Thus, the base $400 per 40-foot container rate increase being sought by the Transpacific Stabilization Agreement seems intentionally modest in comparison with past years. White said he anticipates “a little bit of upward pressure” on rates next year, but nothing like 2010.

-- No immediate capacity crunch for trucking, but beware: There is huge concern in the transportation industry about the impact of the CSA 2010 driver safety regulation. The question is when it will hit.

In a question to the audience at the Intermodal Expo/Transcomp event this month about which sector will see the most upward pricing pressure in 2011, truckload received the most votes by far after receiving relatively few votes when the same question was asked last year. Not only will unsafe drivers be removed from a chronically thin driver pool, but shippers will shy away from using second-tier truckers with questionable insurance, given that under the regulation, liability can easily extend to a deep-pocketed shipper.

“There is a real possibility that when (CSA) kicks in that there will be a very, very short supply, because it won’t be one of these things of going out and buying new trucks or finding trucks in the used market. This will be about finding drivers, which has always been a challenge in the industry,” Chris Lofgren, CEO of Schneider National, said at this month’s event. He said he believes the CSA rule could result in the loss of 10 percent of trucking capacity.

What is needed to turn this into a full-blown crisis is a strong rebound, and that has yet to happen. “The consumer has to come back,” Lofgren said, “and I think we have to see housing at least stabilize, and it’s still falling in a lot of these markets.”

And that, of course, is an entirely different kind of crisis.

Peter Tirschwell is senior vice president for strategy at UBM Global Trade. Contact him at ptirschwell@joc.com and follow him at www.twitter.com/PeterTirschwell.