Reflections

Reflections

Looking back on 2006, the first thing that strikes me is how fast it seems to have come and gone. Besides that, however, what happened in 2006?

Focusing on the industry issues, there was a wide variety of activities that took us from the ridiculous (DP World, strangely still not resolved), to the surprises (full ships with falling rates), to astonishment (14,500-TEU ships), to dissatisfaction (vessel schedules off by 40 percent), to frustration (diminished customer services), to relief (getting through peak season without major supply-chain problems).

For cargo interests, 2006 provided a mixed bag of results. It was nice to have gotten the rate reductions, but they were offset at least in part by diminishing customer service, from the hard-to-navigate voice and Internet services with untold numbers of prompts, to the frequency of late vessel arrivals. It seems that enough time has passed for these basics to have been improved dramatically, if not perfected. They haven't been.

But even though ships were relatively full for almost the entire year, there were no prolonged delays in the overall supply chain. Some of the "transition-chaos" caused by carrier consolidation seems to have finally begun to become a historical footnote. But rumors relating to further consolidation within the ocean carrier industry are becoming more persistent. And the infrastructure that requires significant upgrading to keep pace with the growth in the global market continues to be a concern because of the lack of a collective direction and the leadership required to make it happen.

The ocean carriers may have been their own worst enemies in 2006. As they budgeted for 2006 during the fall of 2005, they also began to lower rates in the Asia-Europe trades, and, due to timing, to a lesser degree in the Asia-U.S. trade, all in anticipation of excess capacity as new ships and capacity were being scheduled into service.

While they knew that the markets were forecast to increase at near double-digit levels, the

capacity was to have increased by nearly 16 percent. Problem is, much of that capacity didn't enter the market until later in the year. So, as carrier executives look at their bottom-line results for 2006, they see significant volume increases offset by lower rates and some increases in cost - all leading to severely reduced profits.

Could it have been prevented? Theoretically, anything can be prevented, but circumstances play a role in how and why decisions are made. Going into 2006, those circumstances caused several key players to take actions that led to the industry's relatively poor financial performance.

Still, 2006 also had its share of positive aspects. The growth in global trade has to encourage all involved; for the sixth straight year global trade, led by China's exports to the U.S. and Europe, is up by nearly double-digits and is forecast to double by 2015. Ocean carrier capacity is growing to meet forecast demands. Ports and terminals are expanding, but face environmental, labor and, in some cases, geographical hurdles.

The increased growth is truly a good news-bad news situation. Motor carriers need more drivers in the U.S. and elsewhere, and railroads need additional capacity and improved operating speeds.

U.S. railroads' average miles per hour have declined in recent years, mostly because the network didn't have the capacity for the double-digit growth experienced during the past six years, and, in some instances, because of the deteriorating condition of track beds. The question is, are the railroads committed to doing what is necessary not only to catch up to today's environment, but also to improve services as the import trades continue to expand?

So how was 2006? Very encouraging in terms of continuing growth in the global markets, with all indications pointing to more of the same for the next decade or longer.

There was positive growth activity by some service providers, tempered with some decline in customer service and reliability. Ocean carriers continue to be prone to self-inflicted wounds, and there is some concern about the lack of direction for a U.S. transportation policy and how it will affect the infrastructure in the short- and long-term future.

But, overall, 2006 was not a bad year.

Gary Ferrulli is president of Global Logistics Consulting in Chandler, Ariz. He can be contacted at

ferrullig@mindspring.com.