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July10, 2017

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BENEATH THE SURFACE 30 THE JOURNAL OF COMMERCE Gary Ferrulli JULY 10.2017 GROUNDHOG DAY? HALFWAY THROUGH 2017, it appears to me to be a rerun of the past few years. However, there are issues to watch. The first is what I'll call "trans- pa rent pricing," technolog ica l models allowing those who wish to use the systems of one of several providers to obtain rates and space guarantees in advance of shipping. Transparent rates were in exis- tence when I started in the business in the form of publicly available and filed tariffs, using "common car - riage" principals. Under the guise of deregulation, the big shippers got to take advantage of their size and buy- ing power, and obtained confidential contracting. It allowed carriers to dis- criminate between shippers based on whatever criteria they decided; most of the time that is volume. Over time, access to the spot market rates became publicly avail- able and published weekly in your favorite industry periodical. It is only relatively accurate as it is an average of averages. And rumors on service contract rate levels seem to leak. So now, several entities have come up with the solution; there are systems offerings from multiple sources to provide an on-line price quote and "lock in" devices. This isn't the first time it's been tried, and it won't be the last. A recent JOC report by Senior Editor Hugh Morley on Online Container Marketplaces includes a quote I can't ignore: "It's so convenient, and the whole process is so transparent, I can do it from my laptop. I can book a shipment, pay for a shipment, in five to 10 minutes." That wasn't from a director of supply chain for a large company, rather someone in a relatively smaller firm without a true supply chain department, supported by systems and accounting, etc. A close friend who has been in this business almost as long as I have, now works with one of these new entities, and he thinks the market size for these tools is 15 percent. If so, then some will have suc- cess with it. I personally don't think the market is that large, and one of the keys is — when do you pay? Upfront? Or a good portion of it. Most shippers want or need at least 21 days; 30 is the norm, and 45 to 90 isn't out of the question. And what about the 25 percent no- shows the carriers talk about — how many shippers are confident enough of when the goods are really going to be finished and shipped? The penal- ties for late shipments and no-shows may be discouraging factors; remem- ber, you are paying upfront. But, to those who can use these tools, more power to you. It can make your work processes easier, which is great. I also note the first-quarter results for carriers, a mixed bag for sure. But notice that APL, now a part of CMA CGM, made money. Enough so to have CMA CGM report a profit in the first quarter. APL didn't make money for years under NOL and the Temasak ownership. Some of the change should be due to synergies, amalgamating two entities into one and removing redundancies. But for the most part, APL is on its own, CMA CMG wanting to retain a strong brand presence, particularly in the trans-Pacific. But what the results show is that under a busi- ness environment with CMA CGM, they can make money where they couldn't under a government-owned and -controlled environment. Governments don't run busi- nesses well, there are political considerations involved in almost everything that they do, causing inef- ficiencies. Government-owned or -supported carriers have been around my entire career, and most of them have disappeared, because sooner or later, as with Singapore, governments get tired of funding them. But they still exist, and if looked at closely, they are not efficient. They are there for other than busi- ness reasons, and they impact all other carriers in the industry. As we move closer to having only 10 carri- ers control 90 percent of the global containerized market, what's the real impact, not only on the indus- try, but to their customers? That's another time-will-tell issue. And, finally, there's a nearly once-in-a-lifetime event. Mediter- ranean Shipping Co. went public with some information on its busi- ness and results. To be sure, no numbers, just verbiage about losing money in the container line portion of their maritime empire. Ironically, they blame 2M Alliance partner Maersk's pricing aggressiveness as the reason for the loss. Interesting in many ways, but in my 45 years in this industry, nothing in this busi- ness should surprise me. JOC Gary Ferrulli is president-North America for Unicon Logistics. Contact him at Governments don't run businesses well, there are political considerations involved in almost everything that they do, causing inefficiencies.

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