AIT Sea Freight Experts Attend Industry Conference

Tom Clifford, Senior Director of Transpacific and AIT’s Manager of Corporate Ocean Services, were among the 2,000+ attendees gathered in Long Beach, California for last month’s Trans-Pacific Maritime (TPM) Conference hosted by the Journal of Commerce (JOC). The four day event brought together a full constellation of representatives with a stake in the international containerized cargo industry from shippers, carriers and NVOs (non-vessel operating common carriers) to politicians, labor unions and port authority managers.

This year’s keynote speaker was Søren Skou, CEO of the largest carrier in the industry, Maersk. According to Clifford, Skou predicted that 2013 would be similar to 2012 – a year which saw carriers return to profitability (especially in the fourth quarter) after a disastrous 2011. In particular, he mentioned that the Triple E class megaships being delivered to Maersk in 2013 would not affect their worldwide container ship capacity, despite the ships’ ability to handle more than 18,000 TEUs (twenty foot equivalent units).

Overcapacity has been a prevalent topic in the industry with Maersk and other carriers expecting to add multiple new megaships to their fleets in 2013 and beyond. If the supply of container cargo capacity exceeds the demand, rates could plummet and carriers could once again sustain losses in the billions of dollars. AIT’s Corporate Ocean Services Manager pointed out that shippers and NVOs are concerned that more megaships entering the market will lead to fewer options and longer port stays.

Commenting on the industry as a whole, Skou said he expects steamship lines to keep 6% of capacity out of the system. He said scrapping older ships will reduce overall capacity by two percent, while slow steaming (deliberately cruising at a lower speed to save fuel costs) will effectively reduced capacity by another two percent. The remaining two percent will be accounted for by willfully idling some ships.

The subsequent panel discussion featured Alphaliners’ Executive Consultant, Tan Hua Joo, whose contribution was singled out by both AIT attendees as a highlight of the conference. Joo presented an opposing viewpoint to the keynote address saying that overcapacity would feed continued rate volatility. He added that the rate cycle used to take three to five years, but now happens once every quarter. Furthermore, Joo said he expects carriers will have less success implementing General Rate Increases (GRIs), because he believes overcapacity will be at least five percent and perhaps as much as 15%, making rate hikes difficult to sustain. This is a much higher gap than predicted by Skou.

On this topic, Clifford commented that while negotiating season with the carriers used to take place in the first quarter of every year, the rates are now negotiated year round. He noted that AIT was successful selling imports in 2012 based on this volatility in the market and it gives us a lot to talk to our customers about.

Both of AIT’s conference-going co-workers tend to agree with Joo, saying the watchword for 2013 is uncertainty. They both advise that shippers should keep a close eye on the China and Shanghai Containerized Freight Indexes, watching where the peaks and the valleys are.

Meanwhile, there is growing support in the market for Index Linking Contracts (ILCs) and the further commoditization of capacity in the freight forwarding futures market. Both shippers and carriers believe such a move would level out the volatility that has been so challenging in recent years.

Another common topic was nearsourcing in Mexico. “Some factories are leaving China,” said Clifford, “That will affect the transpacific demand as we see that cargo shift to ground transportation.”

Among the other areas explored over the four day event was the refrigerated container (aka ‘reefer’) outlook with Maersk demanding a large GRI to help determine if it will remain in that segment of the market. Labor negotiations remain a hot button issue after last year’s weeklong strike on the west coast and a narrowly avoided disruption all along the east and gulf coasts. Finally, automation is seen by port authorities as a necessary step forward to increase productivity, but it continues to be a source of tension with the unions and the economy is not growing at a pace sufficient to support such investments.

Upon his return from Long Beach, the Manager of Corporate Ocean Services from AIT said, “TPM was a great opportunity to hear from industry leaders and to network with customers and vendors to strengthen our relationships.”

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