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Transpacific carriers have painted themselves into a tight corner

Posted to Far East Maritime (by on January 26, 2010

Matching supply with demand has never been a strong point with container lines, and 2010 is looking more uncertain than ever.

One of two things could happen this year as the US limps out of its recession, and both will directly impact the fortunes of container shipping lines on the transpacific.

The word, “fortunes”, should probably not be used in the same sentence as container lines, but taking the glass-half-full approach, there could be pent up demand in consumers across the country. After a meager Christmas, shoppers could be ready to unleash their wallets and spread the love around this year.

That will ramp up retail sales, and most of those goods originate in China, or are at least assembled and exported from there via ocean carrier.

If the glass turns out to be half empty, US consumers will keep their hands in their pockets, choosing to be frugal and using discretionary spending to pare down debt instead of buying junior a new mountain bike and letting mummy in on Victoria’s Secret.

That will keep a lid on demand and slow the box traffic crossing the Pacific.

Container lines have proved in the past that they do not possess the ability to read crystal balls – who said newbuildings? – and executives charged with matching supply and demand are going to have a devil of a time getting the balance right.

Eastbound ship utilisation of 90 percent-plus is what transpacific carriers want, but this will require the accurate prediction of consumer demand.

The National Retail Association reckons consumer spending will increase at between two and 2.5 percent. Drewry's Container Forecaster report expects a 3.4 percent increase in global container traffic this year, with the Transpacific Stabilisation Agreement looking forward to a “significant increase in traffic”.

The chief problem is that retailers will not be operating as they have been in the past, so benchmarking them will be that much more difficult. US stores have become smarter in planning their stock needs, and they appear ready to accept the risk of stockouts if it means being able to maintain lean inventories.

Transpacific lines will be sitting down with shippers in the next few months for the annual contract negotiations, and will be desperate to lock their customers in at healthy freight rates.

The lines have long maintained that better rates equal better service levels, and they have been billing the next year’s freight rates as pretty much make or break. But it remains to be seen whether their diplomatic abilities have improved enough to convince their customers that when the carriers make money, everyone wins.

Implementing the “emergency revenue charge” to help transpacific carriers rake in extra revenue a couple of months before the start of contract negotiations would suggests otherwise.

 

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