Issue link: https://jocdigital.uberflip.com/i/802629
BENEATH THE SURFACE 30 THE JOURNAL OF COMMERCE www.joc.com Gary Ferrulli APRIL 3.2017 SKEPTICISM IS NATURAL I HAVE BECOME a pragmatic skeptic over the course of my 45 years in the shipping industry, and there are some issues that have my prag- matic mentality more than mildly skeptical. In evaluating the announce- ment f rom t he TH E A l l ia nce — Hapag-Lloyd, "K" Line, MOL, NYK Line, and Yang Ming — on the ser vice patterns beg inning April 1 a nd t he safeg ua rd if a bankruptcy occurs with one of its members, it strikes me that MOL's six 20,000-plus-TEU ships aren't in service yet, and other alliance members already have many mega- vessels operating or on order. United Arab Shipping Co., whose integration into Hapag-Lloyd has been delayed, has six 18,800-TEU ships to add to those up and coming for MOL. What happens after that? The merger of the three Japanese carriers is 14 to 18 months away, with MOL mega-ships just beginning to be put into service. That will represent another major change in the alliance, if all goes as reported. The 2M (Maersk and Mediter- ranean Shipping Co.) and Ocean (Orient Overseas Container Line, Evergreen, Cosco Shipping, and CMA CGM) alliances each have mega-ships plying the seas, and new ones on order. But what will Cosco do with the $26 billion the Chinese government will give it over the next five years? Sure, Cosco is more than just a container carrier, but some of that money must be for container ships. OOCL also is the subject of speculation as a possible acquisition target, and the carrier has six 20,000- TEU ships scheduled for delivery later this year and next. It also just chartered eight vessels on a short- term lease, so where do those fit? And it appears the new alliance members lost $3 billion collectively in 2016. Speculation continues to swirl about the potential for more mergers, acquisitions, and bankruptcies. A s CM A CGM CEO Rodolphe Saade said at the 17th Annual TPM Conference on Feb. 28, consolidation will continue, but there are few attractive targets remaining, and the result has to be strengthening of an existing network. Changing schedules, port calls, frequency, losing and gaining carri- ers, and other shifts are all part of the containerized shipping indus- try landscape. But for those who think Hanjin Shipping's collapse last August was a once-in-a-lifetime event, consider that 75 percent of the carriers I recall and dealt with in my career no longer exist. There were seven Japanese carriers 45 years ago; three remain, and now are planning to merge into one. Nine US-flag carriers are gone. Six South American-f lag carriers sailed the seas then; none are left. Although the top three carriers in the world today are European, at least nine carriers from the region are historical footnotes. And when I broke into the business, MSC didn't exist, and Maersk had no container ships. CMA CGM was two separate carriers, eventually evolving into one after a family court battle. There's no doubt the landscape is ever changing, and there are truly no one-time events. The speaker presentations at TPM underscored the usual mix of industry optimism and gloom. Overall global trade is growing modestly again, with the trans- Pacific eastbound lane increasing between 5 and 9 percent. There is concern about President Trump's real trade policy (vs. the rhetoric and among other things); questions on the impact of new capacity in t he ma rket vs. ma nag ing t hat capacity; a new entrant like South Korea's SM Line and expansion of Hyundai Merchant Marine, the combination of which could be Hanjin reborn. And, of course, there is the issue of rates. Where will they go? Expec- tations are that rates will inch up, but by how much? Could it be $150 per 40-foot container to the US West Coast, or $300 to $400? I know where I'd place my bets. Tech nolog y wa s a heav i ly discussed issue at TPM, w it h "digitized" and "blockchain" being new buzzwords. The abilit y to report on the location of a container or — more importantly to the BCO — the purchase order, is still largely a work in progress. Simply put, once a container leaves a facility, be it a terminal or inland depot or the customer's premises, it goes into a black hole until it reappears at one of those locations at some point. The r e 's no q ue s t ion t h a t pursuing visibility is important and necessary, but for those who think blockchain is around the corner, take a breath — and a hard look at the supply chain from raw materials to the ultimate customer. Pieces or links may be available in the near future, but the entire supply chain? No. How many cartons are delivered in small lories from factories to consolidation centers in places such as China? More than most know, and that's the issue. There are so many links in the chain that most don't see it, and can't measure it. But progress can be made. It always has. In my career, I've seen vessels grow from 1,800 TEUs to 21,000 TEUs, communications go from telexes to faxes to word processors, emails and scanners; dial telephones to cellphones to today's multipurpose communication devices. Blockchain will come, maybe not completely in my lifetime, but it will come. It's something to look forward to, but always with an experience- based sense of skepticism. JOC Gary Ferrulli is president-North America for Unicon Logistics. Contact him at mrgtf4811@mindspring.com.