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November 26 2018

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4 The Journal of Commerce | November 26 2018 Mark Szakonyi ALTHOUGH CONTAINER SHIPPING fundamentals are improving, 2019 holds major challenges for ocean car- riers, ranging from the most costly environmental mandate in industry history to heightened geopolitical tension spilling into trade. Heading into 2019, the core role of container shipping — moving goods in a timely manner between points A and B — is sputtering during the peak season. Ocean reli- ability fell to the mid-50 percent lev- el in the Asia-Europe trade and into the 40 percent range in September, according to Rotterdam-based SeaIn- telligence Consulting. Facing a return to a financial loss after the first industrywide profit (approximately $7 billion) in six years in 2017, carriers aren't rushing to spend more money on fuel to speed up vessels when they hit weather- and port-related delays. The challenges can be even more acute for midsize carriers such as Yang Ming, requiring prescience and agility. The eighth-largest container line in terms of deployed capacity, according to industry analyst Alphaliner, is taking a varied ap- proach to the low-sulfur mandate by testing out scrubbers and monitor- ing crude oil prices. Most recently, Taiwan-based Yang Ming and six of the largest carriers and terminal operators formed a blockchain con- sortium. Separately, Yang Ming is looking to expand its use of chatbots beyond Taiwan. The outlook for the supply-de- mand ratio is improving, CEO and Chairman Bronson Hsieh said in an October interview with The Journal of Commerce at the company's Taipei headquarters. That's given him opti- mism, despite lower average freight rates and higher bunker prices that produced a nine-month loss of $220 million. Hseih cited Alphalin- er's forecast that demand will increase 4.3 percent next year versus 2018, while capacity will expand 3.9 percent in the same period. Bunker fuel prices will only rise when the International Maritime Organization's low-sulfur mandate takes effect on Jan. 1, 2020. Noting the uncertainty on fuel prices, Hsieh said Yang Ming will have scrubbers deployed on five of the 10 12,000- TEU ships it will charter and is deter- mining whether the rest will have scrubbers or burn low-sulfur fuel. "Everyone should share benefits so everyone should share this cost," Hsieh said. The mandate will cost the con- tainer shipping industry between $13 billion and $15.7 billion, accord- ing to various analyst estimates. Airlines can easily pass on higher jet fuel prices to customers, but carriers don't have that luxury, he said. In- deed, carriers have an unremarkable record of being able to recoup higher costs, though, when faced with deep losses, such as in 2009, they react sharply with capacity withdrawals. Hsieh doesn't expect Yang Ming to cut capacity between the US and mainland China, even if volume de- clines more than usual in early 2019 because of the current front-loading of US imports to beat tariffs. The tit-for-tat tariffs, he said, will only accelerate the shift of manu- facturing from mainland China to Southeast Asia, which he predicted seven years ago at the JOC's TPM Asia Conference in Shenzhen. "I don't think the factories will move overnight. [Yang Ming] will not reduce the space from [main- land] China and United States, but eventually [we] will add more space to Southeast Asia," Hsieh said. Like other carriers, Yang Ming is looking for ways to reduce cost and improve customer service. That's meant partnering with CMA CGM, Cosco Shipping (and subsidiary OOCL), and Evergreen Marine, none of which are Yang Ming's alliance partners, in a blockchain consortium based on CargoSmart technology and supported by Oracle Cloud Blockchain Service. In fact, Yang Ming already has completed a blockchain proof of con- cept but not a complete process. The case allowed the payments tied to shipments by a plastics and electron- ic material supplier to be processed on a secured, decentralized, and encrypted shared ledger platform. Although the test lacked all the parties involved in shipment, ranging from the forwarder to the bank of destination, that are needed for true blockchain, Hsieh said it showed a way to save time and bet- ter protect financial information. Since launching a chatbot service in Taiwan in May 2017, Yang Ming has found that the instant message application enables shippers, customs brokers, and truckers to get faster responses to their questions than via a traditional website. The chatbots, powered by artificial intelligence, can provide functions ranging from cargo tracking to responding to deten- tion-demurrage enquiries. Shippers, for example, can de- termine when their container yard cut-off is by pressing a "CY/CFS cut- off date" function and sending the container number required to check its cut-off date. It's agile, like Yang Ming and fellow carriers must be amid higher volatility both in shipping and the broader global economy, but not yet prescient. JOC email: twitter: @szakonyi_joc A course for agility The Journal of Commerce (USPS 279 – 060), ISSN 1530-7557, November 26, 2018, Volume 19, Issue No. 24. The Journal of Commerce is published bi-weekly except the last week in December (printed 25 times per year) by JOC Group Inc., 450 West 33rd St., 5th Floor, New York, N.Y. 10001. Subscription price: $595 a year. Periodicals postage paid at New York, N.Y., and additional mailing offices. © All rights reserved. No portion of this publication may be copied or reprinted without written permission from the publisher. POSTMASTER: Please send address changes to The Journal of Commerce, Subscription Services Department, 450 West 33rd St., 5th Floor, New York, N.Y. 10001. Letter From the Editor "Everyone should share benefits so everyone should share this cost."

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