Container Ships Must Alter Course for Profitabality Says Report

Container carriers can recover from the losses they suffered in recent price wars by adopting more disciplined business practices, says a new report.

The recently published report by The Boston Consulting Group (BCG) is titled 'Charting a New Course: Restoring Profitability to Container Shipping'. It finds that the container-shipping industry’s poor performance in 2011 and its continued struggles in 2012 are primarily the result of a self-inflicted supply-and-demand imbalance, which triggered intense competition and price wars.

The report goes on to explain how the industry is harming its own economics by following misguided practices—especially those affecting capacity and pricing decisions. The authors also discuss how other factors conspire to make profitability more elusive than in other industries and describe the challenging near-term outlook.

The report discusses a wide variety of strategic, commercial, and operational initiatives that each carrier can undertake to chart a new course—for itself and the industry as a whole—and offers ten imperatives for sustaining profitability. Key themes are:

• Defining an effective strategy aimed at achieving a competitive advantage and built on shoring up key infrastructure assets, establishing stronger alliances, and selectively pursuing M&A
• Demonstrating the value of offerings (including commodity and premium services), setting prices according to market position and customer relationships, and monetizing all service offerings
• Rigorously managing and variabilizing costs to enable critical improvements in operational efficiency
• Enabling informed and data-driven decisions by establishing a robust IT infrastructure, applying business and market intelligence, developing and retaining the right talent, and creating clear metrics to track performance

As the foundation for these moves, carriers must shift their mindset to apply more disciplined practices and compete selectively to ensure a profitable business. “Carriers can no longer rely on a one-size-fits-all approach,” said Dinesh Khanna, a BCG partner and coauthor of the report. “They must decide how and where to compete by analyzing profit pools and the cost to serve specific markets and customers.”

A copy of the report can be downloaded here.