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June 10 2019

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June 10 2019 | The Journal of Commerce 29 Beneath the Surface Gary Ferrulli WITH CARRIERS ISSUING their first-quarter 2019 financials, it appears most are reporting increases in volume, revenue, and operating income. With just a few seeing significant and continuing losses, the container shipping industry is seeing a better start to 2019 than 2018. Carrier problematic issues relate to the global markets, which while expected to grow at nearly 4 percent have slowed to 1 percent growth. A recent Alphaliner forecast said the an - nualized growth will be 2.5 percent. A great deal of uncertainty tied to ongoing US-China tariff issues and, to a lesser degree, US and EU tariffs can be blamed. In recent weeks, the weak- er-than-expected market caused spot market rates in the trans-Pacific east- bound trade to slide. The Asia-Europe shipping markets remain weaker, with rates also tumbling there. My contacts say the trans-Pacific east- bound market will be strong between July and September, and spot rates should then climb. This will contrast the Asia-Europe markets, I am told. Beneficial cargo owners (BCOs) are becoming increasingly vocal on the need to end the US-China tariff dispute to retain a high level of trade with China. However, politicians on both sides of the isle seem to be in relative concert on continuing to pressure China for a more equitable trade relationship and an end to intellectual property theft, which ,of course, China denies. So, the remainder of the year is cloudy on what the markets will do, putting carriers in the position of controlling their destiny through capacity management. They have reasonably good service contracts in place, running from May 2019 to April 2020 in the trans-Pacific eastbound trade. However, the unknown factor coming into play involves the Interna- tional Maritime Organization's (IMO) low-sulfur fuel mandate, effective Jan. 1, 2020. With carrier fuel costs to esca- late, surcharges hang in the balance. Long-time and well-known carrier PIL has been rumored to be for sale, its debt structure the alleged reason. A month ago, the rumor was that Cosco was going to be the buyer while a few other carriers were interested. Then recently the government of Singapore's sovereign wealth fund, Temasek, apparently bailed PIL out — the same Temasek that negotiated the sale of NOL/APL to CMA CGM for a handsome price. It has some wondering, has the government of Singapore joined China, Japan, Korea, and Taiwan as a nation wanting to support a shipping line in furtherance of other national interests? Or might this be a ploy to up the sale price of the carrier? We'll have to wait and see. The container carriers, for once, all agreed to a position opposing pro - posed regulations by IMO to create speed limits for vessels to help in the fight to lower emission levels. Owners of differing types of vessels were said to support the proposals, which could have set a maximum speed limit or a maximum average speed limit. The potential impact of these pro- posals couldn't have had proponents of faster and more reliable services from container carriers very enthused, to the degree that any of them were aware that there were such proposals. But efforts will continue in the search for means to reduce pollutants emit- ted into the air by the growing number of vessels sailing in the global trades. Acceptable solutions may have to be forced by regulators and nations in the coming years. There are reports that carriers are getting nervous about the protec- tionist policies being used by nations — likely the US disputes with China, the EU, Mexico, and Canada the biggest concerns — with a possibility that this could spread to other mar- kets. There could be dislocations in sourcing of products, causing carriers to adjust schedules to service larger volumes from what are now smaller markets, while shrinking some of the largest markets of today. That would be a very narrow view by some carriers, with their own gov- ernment affiliations, subsidies, favor- able port and terminal arrangements, and national support from manufac- turers and other shippers. There's some thought in the EU to consider countervailing measures for their own maritime-related industries, including carriers and shipbuilding. In a sense, it's going back in time when many shipping companies were owned, operated or heavily supported by their governments, including the US. Over the years, those subsidies disappeared, and so did many of the carriers. It became, for a time, heavily commercialized with the massive growth of global trade between 1986 and 2006 creating the impetus for vastly upgrading vessel capabilities as well as shoreside support structures and national infrastructures. Some subsidized carriers still existed, and the lack of consistent profitability and steep rise in the cost involved in global services took its toll, with mergers, acquisitions, and a major bankruptcy taking place in a relatively few years. Left standing are a few nation- ally supported carriers and a few commercial entities, less than two handfuls, who virtually control all containerized cargo movement. That is something to get nervous about — what's the alternative? The cloudiness surrounding the movement of global containerized cargoes remains. JOC Gary Ferrulli is CEO of Global Logistics & Transport Consulting. Contact him at Enshrouded in uncertainty The remainder of the year is cloudy on what the markets will do, putting carriers in the position of controlling their destiny through capacity management.

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