Resolutions

Resolutions

If 2009 was the year of the economic disaster and 2010 was the year of recovery and conflict, what will the ocean shipping industry call 2011 a year from now?

What challenges lay ahead? Will there be big surprises, such as early 2010’s unexpectedly high volumes, that cause conflict between cargo interests and carriers? What signs are there that might give us a view of where we’re headed?

I see a few, and they can’t be categorized as surprises; they’re facts that won’t change, because they’re already in motion and nothing can stop them. And they will impact global trade, although to what degree isn’t clear.

The first and most obvious sign is the increase in ship capacity that started last year. Sixty-one vessels exceeding 7,500 TEUs were delivered in 2010, with 29 of those larger than 10,000 TEUs. Another 76 vessels with at least 7,500 TEUs of capacity will be delivered this year — 49 of these will be larger than 10,000 TEUs.

With that much new capacity, it boils down to how carriers will manage it. With memories fresh of early 2010’s controversial rolling of cargo, carriers will be conservative and won’t remove capacity to the extent that delays would result.

One burning question is, what are shippers saying about their cargo volumes, especially during the first three to four months of the year? My shipper contacts say late-December movements were fairly strong, especially compared to the seasonably weak first half of the month. The second week of January, they say, is when the market picks up again and volumes grow. But to what extent will that occur this year?

Those shippers who have spent considerable time trying to get a real picture of 2011 tell me their volumes will grow 3 to 7 percent this year, with the average being 5 to 6 percent globally.

More have gone the extra mile this year to get better detail, not only on the changes in volumes but also on changes in sourcing, the timing of changes and the real “crunch time” volumes, to insert into their service contracts. Some have done this before with reasonably good results, getting guaranteed equipment and capacity for committed volumes at specific times of the year.

Others haven’t been willing to make such commitments before, and it cost them equipment and space in critical periods. They were upset with carriers because they had been loyal supporters in the past, but, absent a commitment during specific time periods, that wasn’t enough to protect them.

Some shippers still doubt the carriers’ ability to protect equipment and space during the peak season. To them, I say my personal experience is that carriers live up to those commitments more than 96 percent of the time. It comes down to being able to get your own company to commit.

Shippers, carriers and industry prognosticators seem relatively confident 2011 will be a reasonably good year, with the intra-Asia market leading the way with double-digit or near double-digit growth. Many expect European volumes to grow 5 to 6 percent, despite the blustery economic climate on the continent. Similarly, Asia-U.S. trade appears headed for 5 percent growth, with U.S. exports expected to be up closer to 8 percent.

Fuel costs and their impact on carrier bottom lines are other issues. Forward buying offers some protection from the increases we know are coming, but they still represent increased costs for carriers. The watch for fuel surcharges will return this year and continue into 2012.

John Hofmeister, former president and CEO of Shell Oil, and others see gasoline hitting $5 a gallon in the U.S. by 2012 as crude oil exceeds $100 a barrel this year and $125 a barrel next year. Slow-steaming and super-slow-steaming may take some sting out of the price increases in relative terms, but for carriers, they are cost increases nonetheless. Carriers will take the opportunity to launch a few rounds of fuel surcharge hikes — or at least attempts at them.

Finally, we should see a renewed sense of “professional courtesy” this year. 2010 was a low point in that regard, and no one I’ve talked with wants a repeat. The biggest questions in this area involve carriers’ willingness to strengthen their internal processes and systems to improve customer service, and what adjustments they’ll make to their schedules — changes that dramatically affect shippers’ supply chain planning.

It will be interesting to see if shippers are willing to commit specific volumes at specific times of the year in exchange for guaranteed equipment and space. It may depend on how badly they need reliable, consistent service over the coming 12 months.

Gary Ferrulli is president of Global Logistics Consulting in Chandler, Ariz. Contact him at ferrullig@mindspring.com.