Most Januarys are quiet; cargo interests are just waking up after the holidays in the U.S. and Asia. Then the pace picks up, and the world gets back to normal. 2009 will be no different, despite the "soft market" that will dominate. The year is full of other elements that will make it more than just a little interesting.
I'm sure anyone who read that rates from China to Europe had dropped to $0 -- yes, zero -- (See the Jan. 26 issue of the JoC, "Rock bottom,") gave a little gasp. Are carriers crazy? Well, yes, a little. Turns out it isn't $0 -- terminal-handling and fuel surcharges also applied -- but it was close to that for the line-haul portion of the total charges.
Drewry Shipping Consultants said there was a $100 charge for the line-haul. But you have to wonder about the implications here. Were shippers being asked to just pay for fuel, lift-on and lift-off charges, and the $100? Was this a ploy to try to fill a new vessel that had just entered the market? It could be, and, if so, keep watching, because there are several more vessels entering the market in 2009.
It's no wonder that one of the banks involved in the financing of the Hapag-Lloyd purchase backed out; the bank suddenly realized that it was dealing with an industry that was . . . what? How do you describe it? For those who have been around a while, there is no apt description of what decisions are made by carrier management from time to time.
Can cargo interests truly be interested in the outcome of what happens if this continues? There will undoubtedly be some good short-term results in terms of low rates. There will also be some inconvenience: slow-steaming of vessels and numerous changes to service patterns to reduce capacity and remove unneeded costs -- all of which will force shippers to adjust their inventory flows and ordering processes.
Ultimately, cargo interests can't think purely in terms of lower freight rates. Service must have a value. Any prolonged change in service, be it slow-steaming or different service patterns, causes disruption for shippers. Their computers have to work overtime to redefine the supply chain and adjust the inventory requirements.
While Asia-Europe rates may have caused a stir, the trans-Pacific market and rates are showing the same softness, with rates dropping $500 per container or more. Again, slower speeds and service changes are the order of the day.
In the midst of these actions comes the news that with oil prices and bunker costs dropping during the past several months, the "slow-speed-and-add-a-vessel" strategy employed to save costs may be a thing of the past. There are always those divergent lines between fuel and other operating costs, and with oil prices falling dramatically, the "additional vessel" strategy may no longer be viable. How long will it take to change the service patterns again and remove those unwanted ships?
Speaking of unwanted ships, all of the owners of chartered vessels who did well during the past seven or eight years must be wondering what to do with them as they are turned back, awaiting the global markets to pick up again. Traditionally, there have been entrepreneurs who latched on to them at bargain-basement prices, operated them cheaply, and were able to compete because of their apparent lower cost advantage. I don't think that's the case today, except perhaps in some niche markets. The low Asia-Europe rates are enough to keep most risk takers at bay in that market.
With the trans-Pacific reductions, and the fact that the major carriers will likely be unwilling to give up any market share, that trade is not going to be easy to penetrate.
Are there other opportunities out there -- niche markets that would be attractive? If anyone finds one, e-mail me; I have some friends who . . . well, on second thought . . ..
Gary Ferrulli is president of Global Logistics Consulting in Chandler, Ariz. He can be contacted firstname.lastname@example.org.