There’s general consensus among experts that the recession is on the wane. Over the next few years, GDP and global trade should begin to recover.
But it remains to be seen whether these improvements in the macro-economic landscape are good news for the liner shipping industry. Our behavior, and that of our customers, needs to change, beginning right now.
Thousands of words have already been written on the depths reached by container carriers in the past 12 months — so there’s no need to rake over old coals here.
But we must begin to change the picture, or worse consequences await us. Shipping lines will fail. The quality of the services that international shippers depend on will decline or disappear altogether.
So what needs to happen? Here’s what I see:
-- Carriers must have a better understanding of and more discipline in managing the cost drivers in their business. We must adjust to new economic realities by rationalizing services and wringing out excess capacity, while continuing to innovate.
-- Shippers and carriers must enter into more constructive dialogue to better understand one another’s business priorities.
-- Our conversations suggest many major shippers want stability in terms of service provision and rate levels. We will see more shippers partner with carriers they can count on for the long-haul – specifically those with financial strength and a commitment to service quality and reliability.
-- Freight rates must go up significantly across all trades – this is key.
After record returns over several years, the liner shipping industry saw itself as highly profitable and raced to invest in new capacity. But in reality, the sector’s return on capital in this decade has been very poor when compared with other sectors. The problem reached a critical stage in 2009 as rates hit record lows.
Carriers in many instances charged less to move containers than the cost of moving them. This is not sustainable. Rate restoration is now essential to restore industry profitability.
Carriers and shippers have already begun the discussion about 2010 freight rates. The good news is that there’s general understanding on both sides that something must be done quickly.