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4 THE JOURNAL OF COMMERCE Editor's Letter Chris Brooks THE EXTENT TO which beneficial cargo owners are controlling the discussion in trans-Pacifi c contract negotiations is becoming more evi- dent, and that leverage is greater now than at any time since the 2008-09 recession. Wit h nea rly t wo -t h i rd s of BCOs responding to a recent sur- vey expecting their rates in 2016-17 service contracts to fall by at least 3 percent, the message to ocean car- riers is anything but positive. That's because, as Senior Editor Bill Mon- gelluzzo analyzes on page 15, early evidence points to shippers signing contracts with rates to the West Coast of about $1,400 per 40-foot container, and the biggest BCOs get- ting deals at $200 to $300 less. Just how bad is that for carriers? Consider that 2015-16 contract rates were about $1,800 per FEU, with the largest carriers getting a $100 to $200 discount. Even then, that was 20 percent below the going rate for much of the previous decade. Underpinning the declines, of course, is the capacity overhang resulting from carriers' 5-year-old push to generate economies of scale by acquiring an armada of mega- vessels capable of carrying 14,000 to more than 18,000 TEUs. It's a strategy that has backfi red, accord- ing to a growing number of industry analysts. "For the last four years, the orderbook has been fi lled with large ship orders, and what we need is for those companies to stop ordering," George Youroukos, CEO of Athens, Greece-based container ship owner Poseidon Containers, told the 10th Annual Capital Link International & Offshore Forum on March 21 in New York. "What they realize is that these large ships don't offer the econ- omies of scale they were hoping for, especially with the price of oil going down and the market going down." But as Gary Ferrulli states on page 32, sometimes carriers are their own worst enemies. Who can argue after one large electronics importer told The Journal of Commerce that the trans-Pacifi c rate offers he's received have been fl at or down compared to last year, despite being willing to take "a mild increase, though I'm not going to tell my carriers that." Other shippers, understand- ing the value of relationships — and the cyclical nature of this business — subscribe to the view that states, "Don't kick a man when he's down." The real value, in other words, is the business relationship, and the knowledge that a strong one will curry carrier favor. "For us as a com- pany, reputation is everything. We go to extreme extents to maintain our relationships (and) reputation," Simon Preisler, director of logistics for pulp and paper manufacturer Central National Gottesman, told the 16th Annual TPM Conference last month. "So when we sign on the dotted line saying I will pay you $500, and then somebody comes the next week and drops it to $450, I do not go in and renege" on my original commitment. "I've lost carriers and relation- ships by trying to cheat around the corners too much," added Andrew Gillespie, director of global logistics for industrial and health care prod- ucts manufacturer Ansell. "That didn't work. It's hard to get a second year (contract with a carrier) going when you do that to each other." It also inevitably leads to retri- bution that damages the relationship. "When the market was extremely tight in 2010 (following the reces- sion), we did see carriers treat good shippers differently from bad BCOs," said Philip Damas, director of Drewry Supply Chain Advisors in London. "For good BCOs, the carriers honored the commitments. For bad BCOs, it was the carriers' turn to reopen the contracts. So it depends on which part of a cycle you're in. It's not necessarily a good thing" to, in essence, kick the carriers when they're down. In short, the wise BCO under- stands that what comes around, goes around. JOC DANGEROUS Liaisons The Journal of Commerce (USPS 279 – 060), ISSN 1530-7557, April 4, 2016, Volume 17, Issue No. 7. The Journal of Commerce is published bi-weekly except the last week in December (printed 26 times per year) by JOC Group Inc. 2 Penn Plaza East, 12th Floor, Newark, N.J. 07105. Subscription price: $344 a year. Periodicals postage paid at Newark, N.J., and additional mailing offi ces. © 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, 2 Penn Plaza East, Floor 12, Newark, N.J. 07105-2257. APRIL 4.2016 EXECUTIVE EDITOR, THE JOURNAL OF COMMERCE AND JOC EVENTS Chris Brooks 973.776.7818 MANAGING EDITOR Barbara Wyker 973.776.7817 EXECUTIVE EDITOR, JOC.COM Mark Szakonyi 202.872.1234 SENIOR EDITORS Joseph Bonney, Trans-Atlantic, East and Gulf Coast, Latin America 973.776.7809 William B. Cassidy, Trucking and Domestic Transportation 202.872.1228 Bill Mongelluzzo, Trans-Pacifi c 562.428.5999 Greg Knowler, Asia Editor, IHS Maritime & Trade +852 3975 2647 Turloch Mooney, Ports, IHS Maritime & Trade +852 9011 9109 ASSOCIATE EDITOR Reynolds Hutchins, Intermodal Rail and Government/Regulation 202.572.1487 EDITOR-AT-LARGE Peter T. Leach 212.755.0940 RESEARCH EDITOR Marsha Salisbury 973.776.7828 ASSISTANT WEB EDITOR Dustin Braden 973.776.8652 ECONOMIST Mario O. Moreno 973.776.7850 SENIOR CONTENT EDITOR Alessandra Gregory Barrett 860.248.5238 SENIOR DESIGNER Sue Abt, 973.776.7825 DESIGNER Bryan Boyd, 973.776.7827 PUBLISHER Tony Stein 770.295.8809, SALES Cindy Cronin, Strategic Account Manager Southeast, Gulf, Canada sales, 954.551.8305 Zachary Gorman, Account Executive Northeast sales, Classifi eds/Reprints/Copyrights 973.776.7820 Misty Belser, Senior Sales Executive 919.869.7404 Ria Van den Bogaert, Sales Representative Europe, Middle East sales, +32 2 569 8905 Bon Kwok, Sales Representative Asia sales, +852 31707373 Michihiro Kawahara, Sales Representative Japan sales, +81 3 3212 3671 For Magazine Subscription Customer Service: 2 Penn Plaza East, 12th Floor, Newark, N.J. 07105 973.776.8660 • 800.952.3839 MANAGING DIRECTOR, MEDIA AND EVENTS, IHS MARITIME & TRADE, Rhiannon James SENIOR DIRECTOR, CONTENT, IHS MARITIME & TRADE, Peter Tirschwell DIRECTOR, JOC AND RAILRESOURCE, IHS MARITIME & TRADE, Amy Middlebrook DIRECTOR, IHS MARITIME & TRADE, Julia Murphy MANAGER, PRODUCTION, Carmen Verenna MARKETING PROGRAMS MANAGER, PIERS AND JOC, Jesse Case ©2016 The Journal of Commerce — All Rights Reserved For more information, visit our website,

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