Issue link: https://jocdigital.uberflip.com/i/962145
April 16 2018 | The Journal of Commerce 35 www.joc.com Beneath the Surface Gary Ferrulli IN FEBRUARY, I addressed the issue of using technology after refining the processes it is supposed to support. At the 18th Annual TPM Confer- ence in Long Beach in March, there were several very good presenta- tions on initiatives being under- taken to enhance ocean and other modes of transportation. Peter Tirschwell's column in the April 2 issue of The Journal of Commerce notes the requirement for stand- ardization in blockchain, or at least being "interoperable," to maxi- mize the benefits for the entire industry. There is a need to somehow corral those involved into cooperat- ing in some manner to avoid the silo effect. As someone who has been around the ocean carrier industry for more than 45 years, my reaction is, "Are they kidding?" Silos in block- chain are already apparent with more than a dozen known initiatives underway, several involving ocean carriers — all independent of each other. My experience with the industry shows me carriers don't play well together. Start with antitrust immu- nity to fix prices virtually globally — a license to print money — yet the average rate of return under those favorable conditions was about 3 percent. Although many of the carriers were greatly subsidized by their countries, literally dozens left the industry, because the returns couldn't justify the investment. Why? Because they were hyper-competitive, and even with government subsidies, they were managed in a way to not make a real business return. So many of those governments, including the US, said, "No more." The access to chassis in the US underscores another example of a lack of cooperation. For decades, the US trade was the only one where chassis were provided, an outgrowth of the initial container service being a coastwise US domestic service between Florida and Texas, com- peting with trucks. It was also a "simpler and easier" operation, everything on wheels. Global volumes grew rapidly, and terminal space tightened. The rate of return became a paramount issue, and carriers looked closely at their costs; they started reducing extended free time on detention (containers and chassis outside of the terminal). They were partially successful in reducing some of the truly absurd free-time provisions and started discussing eliminating providing chassis in the US. This was in the late 1980s. In the 1990s, they continued discussions on chassis, and finally in the early 2000s said, "That's it, we won't provide chassis in the US any longer." Eighteen years later, they still provide chassis on an exception basis, and some carriers still provide them on all US shipments. And we could spend weeks on rate levels, discussing the logic of how much damage carriers do to themselves because of their hyper-competitiveness. Recently, in a three-day period, one JOC article described the surge in exports from China because of fears of a possi- ble trade war between the US and China. Logic says when the markets strengthen, prices rise. Another JOC article described spot rates dropping. Both were factual and accurate. But common business logic is defied be- cause of the hyper-competitiveness that carriers can't seem to overcome. Logic happened once in my four-plus decades in the industry, in 2010. Beginning in 2006, the sup- ply-demand ratios began to shift as the global economy started to tank when many carriers were beginning to order larger vessels following the lead of Maersk Line, which under- stood the significance of having a low-cost operation. By 2009, the industry was in dire financial straits, and late that year the carriers started to anchor vessels. Aerial photos of the bay at Singapore showed what looked like ants cov- ering a cookie. They were container ships covering the ocean. By early 2010, more than 600 container ships were sitting at anchor in Singapore, the ords in northern Europe, and wherever they could find anchorage space. Carriers lost more than $21 bil- lion in 2009, and made a little more than $8 billion in 2010 — a nearly $30 billion swing in one year. The model was set, right? In 2011 and through 2016, the industry lost money every year, the vessels at anchor fell to under 200, and car- riers ordered larger vessels by the dozens. That led to the collapse of one large carrier and the consolidation of the industry to what it is today, four large carriers, another six to eight medium-sized carriers, and another 40 or so plying various markets. Which brings me back to the issue of getting cooperation from those pursuing technology to improve services and reduce costs. Reality is that it's a form of differ- entiation between competitors. I doubt Maersk and IBM are devel- oping their blockchain program for the sake of all mankind, or even the industry. The same goes for all the others pursuing not only blockchain but other technology solutions to the various challenges in supply chaina and logistics. It could happen: There could be industry cooperation for the second time in my lengthy career. The first time lasted a year and was never repeated. Being the skeptical opti- mist, I doubt there will be a second time. JOC Gary Ferrulli is CEO of Global Logistics & Transport Consulting. Contact him at gferrulli@globallogisticsandtransport.com. Repeat performance? Logic happened once in my four-plus decades in the industry, in 2010.