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TRADING PLACES 62 THE JOURNAL OF COMMERCE www.joc.com Peter Tirschwell NOVEMBER 14.2016 BUILDING A BETTER FUTURE OUT OF THE torrid pace of consoli- dation for which 2016 will long be remembered, a g roup of fewer, much larger organizations will dominate global container ship - ping. It's safe to assume now that the era of the second-tier carrier hanging on in the east-west trades while foraging for scraps of oppor- tunity elsewhere is rapidly fading into history. It's a new era. But what will define it? What ambitions will these new organiza- tions and those of the incumbent mega-carriers whose ranks they are joining have? How will they define themselves and the roles they wish to play? Will they define those roles as creators of value for customers and, by extension, themselves? If so, do they stand any hope of succeeding? Or will a past (and present) of com- moditization and volatility define the future? Will these dominant organizations simply be shipping companies as they have always been and as they are known for, or could they emerge as something else? Do they really want to? Here's another way to look at it: Who wants a future that resembles the past? Who wants to lose money in perpetuity? Who wants price to be where the conversation with the customer begins and ends? Who wants to be in a business that works continuously against its customers' interests? Who wants, partly as a result, to cede business to intermedi- aries who cut you out of the rewards that come from value creation? Who wants to see the customers as the "frenemy," whose business you need, but who rewards you with dis- respect and disloyalty? If there is ever a time when such questions can be asked, when a new future can be defined, it's now. Fol- lowing 2016, the industry will never be the same. The industry many of us have spent a career toiling away within, is gone. Or at least aspects of it are — the names, the companies, the cultures, but, of course, not the tonnage; case in point, Hanjin. For sure, much works against a different future. Perhaps a different future isn't possible, so why waste time even contemplating the idea? Shipping is shipping, and it's always been the same. Dry bulk, tankers, multipurpose, containers, truck- ing, and air cargo all rise and fall on waves of supply and demand. Excess capacity irrespective of mode is like water finding a path downward. It's gravity, pulling down rates in what- ever trade lane it appears, always and forever. The only salvation for these new organizations will be to keep costs in check — easier now with scale — so as to ride out the inevitable storms of overcapacity and their automatic effect on rates. That's a possible, maybe even likely, future. Elements of it are a certainty. But I don't believe a single carrier wants to see the past replicated. Not one of the emerging oligarchy —Maersk Line, Mediter- ranean Shipping Co., CMA CGM, Hapag-Lloyd, Cosco, or the yet-to- be named Japanese line, — doesn't want to create value for its custom- ers. Of course they do, that's the path to sustainable profits for any busi- ness. But to do that, they will have to think differently. That doesn't mean they should not cut rates to fill ships, because that will never stop. It doesn't mean being more prudent in ordering ships. When did the pace of ship ordering successfully anticipate demand so as to maintain equi- librium in the market? You could say they could be more tactical or aggressive in voiding sailings, but they've done that — voided sailings are now business as usual. But the rates? They continue to fall. No, the world demands new thinking of a different kind. It means crossing a chasm in terms of finding opportunities to create value for customers that in their view would benefit. What if a car- rier told customers, whether they be BCOs or forwarders, that if they pay in advance — that is, commit to delivering cargo as per the book- ing like we all do when booking air travel — they will be guaranteed a spot on the ship. It's not a forced no-show sur- charge, because those have been ineffective, but instead an option: Take it or leave it. This would mean carriers re-engineering the load- ing process to create a true priority system, and, come to think of it, the offloading process as well because this also would be an element of value some shippers, depending on their needs, might buy into. Hapag-Lloyd's Rolf Habben Jansen mentioned something along these lines at Sep- tember's JOC Container Trade Europe Conference in Hamburg. As Wan Min, director and presi- dent of China Cosco Shipping Lines, told attendees at the JOC's TPM Asia Conference in October: "Standing at a crossroad in an era of such trans- formation, carriers have two roads ahead from which to choose. One is to maintain the current situation and continue to stick to conventional container shipping operation ideas; that is, treating relationships with peers and upstream and down- stream partners as a competition or as a game. This is the 'old road.' The other is to actively embrace changes and gather the interested parties in the industry chain to co-build a new ecology for a healthy and sustain- able shipping industry. This is the 'new road.' " All of this for carriers means thinking less about themselves and their need to slash costs, and more about the customer. That's a future everyone should buy into. JOC Contact Peter Tirschwell at peter.tirschwell@ihsmarkit.com and follow him on Twitter: @petertirschwell.

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