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May 26, 2014

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22 THE JOURNAL OF COMMERCE MAY 26.2014 TOP 100 IMPORTERS AND EXPORTERS By Joseph Bonney SOME SHIPPERS WELCOME larger container ships and carrier alliances as a way to add capacity and restore carriers' health, but they warn that ports will have to adjust to avoid bottlenecks and added costs. Larger ships were the theme of the Virginia Maritime Association's annual international trade symposium this month, where several shippers said they believed economies of scale and other benefi ts will offset the risks. "To my mind, the mega-ships have the ability to bring product faster, hope- fully less expensively, more timely, to my customers," said Holly Pearce, director of inter- n at ion a l log i st ic s at Lumber Liquidators. Marlon Jones, mana- ger of international dis- tribution at International Paper, said larger ships and vessel-sharing alli- ances could offer ship lines a fi nancial lifeline that benefi ts shippers by preserving carrier competition. "I think we all know that fi nancially the carriers aren't in the best shape. That affects everyone," Jones said. If carriers can maxi- mize economies of scale, "it will keep them competitive. I think we see now where it's getting very close to where some of the car- riers may have to drop out." Jones said he doesn't expect carriers to pass along their per-slot savings voluntarily, but that this is understandable. "My job is to make sure that we try to get them to share those savings. I hope I have enough leverage to at least beat our competition, and that's what counts," he said. Pea rce, Jones a nd ot her shippers acknowledged that increasingly large ships pose operational problems for ports and intermodal networks, and that supply chains will have to adjust to sending or receiving shipments in large blocks instead of a con- tinuous fl ow of smaller shipments. "Some of the congestion we have faced over the last six to 12 months had jaded us," Pearce said. "We think, 'Oh, man, what's going to happen to us now when we're dis- charging 6,000 containers as opposed to 2,000 containers?' So the concerns are there with the infrastructure, especially with the terminals." Pearce said Lumber Liquidators now typically has 50 containers on a vessel, and she's concerned that a less-continuous fl ow of larger blocks of cargo could lead to indigestion in the supply chain, especially if ports can't deal with congestion. "Two or three days of additional inventory is a lot of wood, and I don't have space for it," she said. Jones said bigger ships and their larger, less-frequent deliv- eries could force companies to maintain higher inventories. "That's a concern," he said. "Work- ing capital is a big deal for a large company like International Paper." Container and chassis man- agement also will be a challenge. Companies such as International Paper will have to mesh continu- ous factory operations with what will amount to batched delivery by large ships. "We defi nitely do not want to get into holding containers on our yards. That's not good for our carriers," Jones said. "That's a concern we'll have to work through." Doug Grenna n, director of Nor th America container export trade at Scoular Co., said bigger ships provide more vessel capacity for heavy exports. Scoular's grain and grain products typically weigh 25 to 26 tons per 20-foot container. Carriers' capac- ity for such shipments is limited by vessel stowage restrictions. "What we like about the possibility of big boats is that it brings us more export capacity," Grennan said "The bigger the vessel, the more deadweight capacity, the more loaded grain boxes you can get on the vessel." Larger ships also allow containerized grain products to be shipped in larger quan- tities that allow more shipments to move in containers instead of via bulk carriers. Scoular, which exports about 90,000 TEUs a year, typically ships 35 to 50 con- tainers at a time, and that Chinese export crushers don't want to buy in such small volumes, Grennan said. "One of the ways for us to grow our demand is to increase our booking size by putting 100 or 150 or 200 containers on one ship at one time," he said. "These bigger boats might allow us to do that." JOC Contact Joseph Bonney at and follow him on Twitter: @josephbonney. Getting the Most From Mega-Ships Yes, ports face challenges, but economies of scale will yield benefi ts and offset the risks, some shippers say If carriers can maximize economies of scale, "it will keep them competitive."

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