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Jan.9, 2017

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Page 5 of 139

"That's what's interesting about this industry. It's incredibly difficult to predict what's coming down the pike and what's going to hit us." I f a heart attack can be described as "interest- ing," then Alison Leavitt, managing director of the Wine and Spirits Shippers Association, cer- tainly got it right with that statement in these pages a year ago. Because with all of the hindsight-is-20/20 certainty of the way 2016 played out — overblown concerns about the International Maritime Organization's SOLAS con- tainer weight mandate, unprecedented ocean shipping consolidation, the stunning August collapse of Hanjin Shipping, and the ascension of President-elect Donald J. Trump chief among them — shippers and service pro- viders had their share of shocks to the system. But if 2016 was incredibly difficult to predict, 2017 may be more so. Hanjin's collapse not only shocked and disrupted the industry, but also capped a historic year of consolidation that will reverberate throughout 2017 and beyond. With the carrier's collapse, and the mergers of Cosco and China Shipping, CMA CGM and APL, Hapag- Lloyd and UASC, and Maersk Line and Hamburg Sud, the container shipping industry is in the greatest state of flux in its 60-year history. New and restructured vessel-sharing alliances will begin to operate in the second quarter of this year, presenting shippers with unprecedented challenges. Carriers, meanwhile, are still wrestling with rampant overcapacity, low-single-digit demand growth, and flagging rates that have resulted in billions of dollars of collective losses in five of the last six years. The story is similar in the North American surface transporta- tion industry, where motor carriers and intermodal rail operators are competing aggressively for cargo. With economic growth expected to pick up slightly this year, service providers may begin to see the green shoots of a much-needed recovery. But other risks abound: l Ocean carrier financials are in such bad shape across-the-board that another Hanjin-like collapse and further consolidation isn't out of the question. Delivery of new, large vessels in 2017 again is expected to out- pace growth in demand, so it could be another difficult year for carriers. For shippers, such instability is a risk- filled scenario, and the threat of further consolidation — through mergers, acquisitions, or failures — is deeply troubling. "I'd like to see the rates go up to sustainable levels, because we've got to support the carriers," Steve Hughes, vice president of supplier development, govern- ment affairs, and logistics at Southern California-based auto parts importer Centric Parts, said in the Shipper Roundtable that begins on page 8. "We're going to have more of these Hanjin situations if we don't." l On the landside, the trucking industry faces poten- tial disruption through new regulations, such as the electronic logging mandate, that could tighten capacity and raise new concerns about driver shortages. "The challenges may be especially significant for smaller drayage firms and independent drivers," Ken Kellaway, president and CEO of RoadOne IntermodaLogistics, writes on page 104. "This is where we may see a reduc- tion in driver capacity." Add that to "port congestion, an aging driver population, and drivers leaving to work in other industries, (and) they create a challenging capac- ity environment." l Intermodal rail carriers have largely been suc- cessful in rebuilding service reliability, although that's come during a period of rather weak demand and strong competition from trucking. What will happen when the inevitable demand spike comes? Will railroads be ready? Can railroads regain domestic inter- modal share if truck capacity doesn't tighten like they hope? l And who in January 2016 would possibly, and with a straight face, have predicted Trump's rise to the White House — other than, perhaps, Trump himself? Although he's toned down the anti-trade rhetoric that helped him win the election, importers, exporters, carriers, and consumers all will need to keep a watchful eye on 1600 Pennsylvania Ave. It all adds up to greater uncertainty than Leavitt herself likely envisioned a year ago, and yet, this battle- tested industry not only acknowledges the craziness of it all, but also embraces it. "Those of us who work in global supply chains are no strangers to uncertainty," Bjorn Vang Jensen, vice president of global logistics at appliance maker Electrolux, writes on page 27. "Indeed, we make our living managing it. And in 2017, we will certainly get to earn our keep." JOC Contact Chris Brooks at and follow him on Twitter: @cbrooks_joc. "I'd like to see the rates go up to sustainable levels, because we've got to support the carriers. We're going to have more of these Hanjin situations if we don't." Cracks in the Crystal Ball 2017 ANNUAL REVIEW & OUTLOOK 4 THE JOURNAL OF COMMERCE JANUARY 9.2017 CHRIS BROOKS EDITOR'S NOTE

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