Ocean shipping in dire straits with no short term hope for improvement

by Canadian Shipper

HALIFAX, NS – The globe’s ocean shipping lines are bleeding badly with no immediate relief in sight was the stark reality presented at CITT’s Multi-Modal C-Suite Panel in Halifax yesterday by the president of Rudy Mack Associates, a New-York based consultancy focusing on maritime issues.

A combination of excess capacity and volatile rates is staining profit ledgers in red ink and can only lead to further industry consolidation and possibly further government intervention, warned Rudy Mack, who served as president and CEO of Hapag-Lloyd (America) from 1999 to 2007.

“There will have to be long-term financial patience from the marine lines and long term financial guarantees and financial help from government…When I look at the future, I do see a better horizon but not until 2014-15,” Mack said.

In the meantime, ocean shipping is continuing to suffer from ill-advised capacity decisions made during the previous global trade boom. Despite excess capacity, there are 520 new vessels scheduled to be coming on stream, adding about 10% more capacity to the present global fleet. Attempts by the marine lines to reduce capacity by scrapping older ships are not aggressive enough, Mack argued, pointing out they are removing just 2% of total capacity.

The excess capacity has placed considerable downward pressure on rates, except in situations where marine lines attempt to capitalize on things such as the prospect of dockworker strikes shutting down ports in a particular region by raising rates to alternative destinations.

“They are seizing on anything they can get in addition to the base rate. But that’s only for the short while and only for the slot rate,” Mack said, pointing out the majority of freight moves on contract rates that are “far below” slot rates.

The overall reality of so much excess capacity and the trend towards much larger vessels (some up to 18,000 TEU) is that marine lines have to grow their market share in a global trade market that is not growing as fast as before. That leads to downward pressure on rates.

“There has to be a willingness (among marine carriers) to get out of unprofitable rates. Sales needs to look beyond volume. Marine carriers have to accept losing a customer in order to maintain pricing discipline,” Mack emphasized, adding, however, that in his more than 40 years in the business that is rarely achieved.

He believes further consolidation of carrier operations and of the carriers themselves are essential and need to continue.

Mack also saw a bright opportunity for Halifax in a shipping industry increasingly moving towards larger vessels.

“The larger ships get, the fewer ports they can call on. More feeder ports are required. Halifax has a great opportunity to become a feeder port,” Mack said.

Mack was joined on the blue-chip panel by Doug Harrison, COO of Day and Ross Transportation Group; Jeff Cullen, CEO Bellville Rodair;  Neil McKenna, vice president, transportation, Canadian Tire; Lise Marie Turpin, vice president, Air Canada Cargo;  and Jean Jacques Ruest, executive vice president & chief marketing officer, CN Rail.

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