In my 2016 ARO comments, I referred to the year as the year of “consolidation.”
Previously announced and new merger and acquisition activity reconfirmed this assertion. What I did not foresee was the magnitude of trade disruption that could result from the bankruptcy of a major carrier, in this case that of Hanjin.
Coming into 2017, we have on one hand the cementation of the wave of consolidations that took place or were underway last year, and the establishment of a new company that would integrate the liner shipping interests of Japan's Big 3 carriers, which intends to start operations in April 2018. However, the fallout from the Hanjin debacle cannot be easily forgotten.
Hence, global liner shipping regulators and, in particular, the Federal Maritime Commission, should review their policies and adopt a more balanced approach in fostering a stable liner shipping industry while safeguarding the interests of shippers.
I would venture to recommend some suggestions that could create such an environment.
- Strengthen the Section 15 reporting requirements to extract greater financial data from carriers that would allow the FMC to monitor the financial health of carriers.
- Create a bonding requirement for vessel-operating common carriers based on revenue, to safeguard the interests of shippers in the event of a carrier bankruptcy or prolonged service disruption.
- Substantially increase the monetary value of NVOCC/OTI bonds to wean out unstable operators.
- Bring about greater legitimacy to service contracts to make it more difficult for shippers and carriers to circumvent the original minimum quantity commitment requirement.
I believe that greater regulatory oversight coupled with the ongoing M&A activity and the realignment of the carrier alliances would permit me to label 2017 as the year of “stabilization,” despite the threat of continued overcapacity and the delicate financial situation of a couple of carriers that remain vulnerable as smaller standalone operators.