One significant change I expect in the liner shipping business in 2009 is the greater ability and willingness of carriers to adjust vessel capacity in response to lower demand.
Carriers face what is probably the most serious economic crisis since the inception of the containerized ocean transportation industry in 1956, and they need to react decisively. Vessel expense (fuel and operations) makes up approximately 50 percent of the typical carrier’s profit-and-loss statement, and if a carrier faces falling trade volumes and rates, it is the fastest and most meaningful action a carrier can take to protect profitability.
Carriers have various ways to reduce effective vessel capacity, including slowing vessels down, deployment to other trades, laying up vessels and canceling ship orders. Today, carriers are reducing capacity in an unprecedented way in response to falling demand and rates. This will help stabilize carrier finances and assist in avoiding a more disruptive crash of rates and a resultant destructive shake-up.
One of the facilitators of this greater willingness to address excess capacity is extensive use of operating partnerships whereby carriers can jointly address oversupply and address it in a way that is not as disruptive for any individual carrier. Laying up or finding a home for two vessels deployed in a four-carrier joint service is much easier than dealing with eight vessels in a service operated by a single carrier.
The other change I foresee in 2009 is the joint realization by the various stakeholders terminal operators, port authorities, the ILWU, elected officials, governmental bodies and the general public that in order for U.S. West Coast marine terminals to remain a critical part of the nation’s transport infrastructure and regional economic engines, they must become world-class facilities, in environmental impact, productivity and safety.