Trump card

Trump card

When I flick on the television late at night to catch the baseball scores, I often find myself transfixed by a group of scruffy guys sitting around a table, impassive, staring at each other through reflective sunglasses.

They're poker players, and although I'm not, I usually can't resist pausing for a few minutes to watch. Will the guy with the weak hand bluff his way to victory? Will the fellow with the high cards lose his nerve and fold? What's the guy in the baseball cap really thinking?

Televised poker is great theater, and a new variation on a familiar theme in container shipping. When ocean carriers and cargo interests sit down to negotiate rates and service, there's more bluffing than in a marathon game of Texas Hold'em. The only thing missing is the suspense. Everyone knows from the start that the shippers usually will come out on top.

It's not a new phenomenon. If all of the stories that the JoC has ever written about carriers cutting rates could be collected, containerized and shipped to China, they'd be enough to dislodge America Chung Nam from its perennial position as the largest wastepaper shipper on the JoC Top 100 Importers and Exporters list.

Occasionally, the carriers' hand is so strong that no matter how poorly they play their cards, the shippers accept increases to guarantee that they secure space when demand is high. More often, only the slightest hint of excess capacity is required to cause one or two carriers to start cutting deals.

Much has been said and written about the big new ships being deployed by carriers on the world's busiest trade lanes. But statistics on increased capacity aren't cut and dried. Stowage and stability considerations make it a safe bet that no 10,000-TEU ship will ever carry 10,000 TEUs of cargo.

Everyone knows this, yet shippers continue to be able to play carriers off each other to secure lower rates. Despite movement in recent years toward shipper-carrier partnerships and collaboration, price remains paramount to many cargo interests. Carriers deny that transportation is a commodity, but poor customer service contributes to that perception.

After a couple of years in which carriers were able to boost rates, shippers have been whittling down those increases at the same time carrier costs are rising. Consequently, as Peter Leach reports in this week's cover story, carrier profitability is heading south.

The mystery is why the carriers let this keep happening. Big retailers and other large shippers have staked their companies' futures on low production costs that rely on cheap labor in overseas markets. Without good transportation service, they're out of business. That's a potential trump card for carriers, if they ever figure out how to play it.

Joseph Bonney is editor of The Journal of Commerce. He can be contacted at (973) 848-7139, or at jbonney@joc.com.