Annual Review and Outlook

The last 18 months proved yet again the fragility of the nation’s ports and overall freight transportation system.

The brief recovery in the dry cargo charter market at the end of 2014 was short lived as the steep decline in commodity markets resulted in cargo volumes drying up and rates declining, making 2015 a tough year.

A year ago, the mood in the industry was one of cautious optimism but the past 12 months have seen the turmoil in the maritime industry intensify.

In 2016, the U.S. Federal Maritime Commission will implement significant changes to its regulations for ocean freight forwarders and non-vessel-operating common carriers, the entities that the Shipping Act and FMC regulations describe as ocean transportation intermediaries.

Without a doubt, the key issue for 2016 on the world’s three major trade lanes will be the direct effect the various changes caused by mergers/sales of lines will have on the three alliances in which the carriers are involved.

Freight transportation funding is crucial to success of the Trans-Pacific Partnership agreement.

After reaching a record high in 2015, U.S. containerized imports are likely to stay on an upward track this year as housing market gains strengthen and import prices remain subdued.

My perspective is formulated from over twenty years as a business owner in the maritime industry, encompassing blue water, brown water, and transport engineering. The near future in shipping presents many challenges.

Recent legal developments have slowed moves toward further ratification of the International Convention for the Control and Management of Ships’ Ballast Water and Sediments, 2004. Hopefully, the process has not been entirely derailed.

The speed of digitization around the world is increasing, with the industry being more connected in almost real-time.

The maritime transportation industry plays an important and pivotal role as an enabler of world commerce and as a catalyst to growth throughout international markets, both for developed economies and emerging markets.

The old saying, “I am beginning to sound like a broken record,” comes to mind as I review some of what has been stated in recent years regarding our industry and what appears to be the driving forces going forward with respect to the effects on our industry.

We in the transportation industry faced another extremely tough year full of challenges in 2015.

Will alliances move to the next stage? In recent years, the container shipping industry has seen the formation and growth of alliances as an operating model.

The new year is widely tipped to be the year of consolidation.

The U.S. maritime industry has been under assault recently by political opportunists looking to take advantage of Puerto Rico’s fiscal crisis and the tragedy involving the ship El Faro to advance their misguided agenda of weakening, or eliminating the Jones Act.

It feels like only last week when I was writing the 2015 outlook note, and here we are thinking about 2016. It will be no less interesting — a presidential election in the United States, evolving geo-political developments, gradually raising interest rates in the U.S., fresh stimulus in the EU, a strong U.S. dollar, potential liner industry consolidation, and reshaping east-west alliances, to mention a few ponderable elements.

Whether functioning as an operating port or a landlord port, there are limits to what port authorities can accomplish on their own. As such, industry leaders, including port executives, container shipping companies, labor, planners, truckers and cargo interests need to be bold thinkers willing to address these systemic issues and identify new solutions in collaboration with like-minded representatives from the key stakeholder groups.

The world’s strongest economy is entering its sixth year of lackluster trade growth, the world’s largest export manufacturing economy has turned inward, crude oil hovers at $40 per barrel yet production remains high, and more, ever larger container ships are on order as carriers report quarterly losses and pursue consolidation. Is there, in fact, a “new normal” in global trade?

2015 was a historical year for the third-party logistics industry, not in terms of industry revenue because lower fuel surcharges brought top-line dollars down from their record highs in 2014, but in terms of industry consolidation. The 3PL industry witnessed a record number of mergers and acquisitions among the segment’s largest players over the last 12 months. Favorable financial markets are enabling large companies to secure the money necessary to make sizable acquisitions that translate into top- and bottom-line growth.

The recent terrorist attacks in Paris are a painful reminder of the unrelenting intention of determined adversaries to wage asymmetric warfare against America and countries friendly to us. In 2016, expect increased efforts to prevent the intentional disruption of the marine transportation system and its use to covertly deliver weapons, dangerous substances, and extremist operatives to their intended targets.

With several major carriers debating mergers and others possibly being sold, the changes in tonnage, world routes and vessel-sharing alliances will be at the center of any conversation regarding container shipping in the next 12 months. What we will be witnessing are attempts by many steamship lines to revisit their approaches to better survive, and possibly thrive, in the “current world.”

Figures in the U.S. Maritime Administration’s November 2015 economic report confirm that domestic shipbuilding has been on the rise, with the majority of capital spending going toward new structures and equipment. The report says 124 shipyards are producing new ships in our country, and Administrator Jaenichen calls the Jones Act a driving force behind the industry’s resurgence.

As the current round of 50-foot channel-deepening projects is coming to end, the notion that there will be no federal money for future projects is sinking in. Still, ships deployed in the Asia-U.S. East Coast services via the Suez Canal are likely to continue growing beyond the 13,500-TEU new-Panamax, reaching the 18,000-TEU to 22,000-TEU range already dominating the Asia-Europe services.

Greater use of big data — performance metrics — and sharing of that information is going to play an important role in this industry going forward. Supply chain metrics are becoming more and more critical in decision making.

The Trans-Pacific Partnership agreement is definitely on my watch list for 2016. With global trade growth in decline, positive effects of the TTP in the next 12 months would be welcome.

Given both weakening fuel prices and faltering ship charter hire, the cost to add a new route never has become so easy a thing for carriers who long for bigger market shares without thinking twice if such a bravery action would further worsen the supply-demand plight caused by more deliveries of mega-ships.

While forecasts regarding the U.S. economy vary, one significant trend we expect to continue during 2016 is the growing share of U.S. East Coast and Gulf gateways at the expense of the U.S. West Coast.

It’s difficult to find a catalyst for acceleration in domestic intermodal activity. Shippers were jolted by the capacity shortage that occurred during the so-called Snowpocalypse winter of 2014, and scrambled to lock up intermodal capacity. But as the situation calmed in 2015, they returned to show-me mode in terms of the coming capacity crunch.

2016 will be a challenging year for the liner shipping industry, both in economic terms and on the regulatory front. The two are related.

2016 will require added attention to counter-terrorism and security by all government agencies, including border agencies such as Customs.

With important policy changes to the 2014 Water Resources Reform & Development Act being implemented, the gains inland infrastructure saw in 2015 are expected to continue into 2016.

After posting record-high values in 2014, U.S. beef and pork exports took a step back this year because of a number of headwinds.

Since our nation’s inception, the United States Merchant Marine and maritime industry have been unshakeable pillars supporting our economy, defense and security. In 2016, this will remain a fact of American life — but there are changes and developments on the horizon that will undoubtedly transform our industry.

The conclusion of the Trans-Pacific Partnership negotiations may have received most of the media coverage, but other crucial elements of the international trade agenda still need attention.

Increasing dependence on the use of cyber technologies within our nation’s Marine Transportation System improve the efficiency, capacity, and reliability of the MTS but also introduce complex cyber-related risks

A future trend that may prove to be most important for 3PLs is the increasing demand for last-mile and one-hour deliveries. Midsize and smaller retailers, we believe, will look to 3PLs to help them compete against big retailers.

Supply chains are being recognized more and more as the critical success factor for any business, both for profitability and survival. Operations strategies, organizational development and change management processes, and technology are being challenged for their effectiveness and efficiency.

As we move into 2016, we think the drawdown of the surplus inventories should largely be complete. Once comfortable, shippers will return to normal inventory replenishment practices.

There are two factors that will affect our industry in the upcoming year. The game-changers are the long-awaited release of Automated Commercial Environment, along with the continued rollout of the Centers of Excellence; and the carriers’ current profitability predicament as the expanded Panama Canal opens for business.