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Jan.9, 2017

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136 THE JOURNAL OF COMMERCE www.joc.com JANUARY 9.2017 2017 ANNUAL REVIEW & OUTLOOK THE LAST WORD T here is little question that 2016 will go down as the most transformational year in container shipping since the Ideal X sailed out of Newark in 1956, ush- ering in the era of the container. Never before has the industry witnessed a series of mergers, acquisitions, failures, and restructurings at the pace and scale it's seen over the last year. "The liner shipping industry is undergo- ing the most dramatic restructuring in its history," World Shipping Council President and CEO John Butler writes on page 44 of this issue. But after the dust has settled, as it inevitably will, and probably in short order, what will the shipper face in 2017 and beyond? Has the industry transformed in a way that will accrue to the benefit of the cus- tomer? Or, as has been the case over the past several years, were carrier deci- sions to merge, acquire, or restructure (Hanjin didn't decide to fail) akin to the decisions to build mega-ships or slow steam their vessels, that is, primarily for their own benefit, with little regard for the needs of the customer? Is there any chance of value creation extending to the customer? In the near term, the answer has to be no. As part of the process of con- solidation, carriers are withdrawing capacity. The Maersk-Hamburg Sud, CMA CGM-NOL, Hapag-Lloyd-UASC, and NYK-MOL-"K" Line deals "all point to a rationalization of capacity," Deputy Seaspan Chairman Peter Shaerf says on page 70. As charters come to an end, owners are finding they have few profitable options to re-charter the ships, even very new ones. Case in point: The youngest-ever ship to be scrapped, the 7-year-old Rickmers India, was sold in December for less than $6 mil- lion, having been purchased new for $60 million in 2009, according to IHS Markit Data. The average age of container ships sent to scrapyards is declining. "I expect that we will see continued high levels of both scrapping and idling," Maersk Group CEO Soren Skou said in November, accord- ing to the earnings call transcript posted by Seeking Alpha. In addition to capacity coming out, the restructuring of vessel-sharing agreements — that is, the Ocean and THE alliances' rolling out in the first half of 2017 — will be chaotic for shippers, a fact the 2M partners of Maersk and Mediter- ranean Shipping Co. have been more than happy to point out to customers. "Many shippers express concern, and with good reason, as the supremacy of the giant alliances may come at the expense of shippers," Zim USA President George Goldman writes on page 90. Zimisn't a member of an east-west alliance. Others are also skeptical. "Moving from 18 ocean car- riers to 10, further consolidated into just three alliances, means larger ships, less competition operationally, fewer sailings for exporters to select from, and more stress on terminals and labor," Peter Friedmann, executive direc- tor of the Agriculture and Commodities Transportation Coalition, says on page 26. "In this new, unsettled operating environment, many questions arise, such as how difficult it will be to phase ves- sels in and out of existing networks, and what the impact will be on current transit times, port calls and vessel space," Klaus Schnede, manager for North American Marine at Eastman Chemical, writes on page 27. In the longer term, however, things could play out more favorably for shippers. Will fewer, stronger carriers be able to make the investments that create value for customers? An early test will be the newly created transportation business of Maersk Group, where terminals, logistics and liner busi- nesses are being combined into a new, digitally driven entity that envisions a customer experience akin to that of UPS or FedEx. But while the Maersk game plan is ambitious and forwarding-thinking, it remains to be seen whether such an approach can break the commodity cycle and set up a sce- nario where value is created for the customer, which then is willing to allow the provider to share in the spoils. In its capital markets day on Dec. 13, Maersk spoke of cost synergies coming from the integration of its transportation businesses and the need to maintain cost leadership and a "lowest cost, lower every year" culture. But it also discussed how digitalization and improving the customer experience will be core to its objectives, improving in areas such as track and trace, instant quotes and booking confir- mation and online documentation. These are all services that, at least as provided by carri- ers, are hopelessly antiquated; if Maersk can drive real change and quickly, it has an oppor- tunity to differentiate itself. Other carriers, including some of the newly and soon-to-be consolidated entities, won't be far behind. Customers will benefit from these innovations, but, ultimately, is it enough? What customers truly value is reliability, and that can't be digitized. For that to be achieved, the fundamental carrier-customer relationship has to change. Cosco Shipping (North America) President Feng Bo is right when he says, "Shippers and carriers should have serious discussions about how they contract and agree to rates and contract terms that are fair and keep disasters at bay." JOC Contact Peter Tirschwell at peter.tirschwell@ihsmarkit.com and follow him on Twitter: @petertirschwell. PETER TIRSCHWELL Has the industry evolved in way that will accrue to the benefit of the customer? Benefits for BCOs?

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