The biggest challenge in ocean container shipping will be the imbalance between overcapacity and the rate restoration effort by ocean carriers desperately in need of restoring compensatory levels. This effort will be hard-pressed in an overcapacity market, while underutilized ships will continue to exert downward pressure on rates and plague carriers throughout the year.
Ocean carriers are poised to compete in vessel-sharing agreements, lowering slot costs among the VSA partners, flattening out cost of goods sold (CGS) to be shared by all at similar levels. The problem with this strategy is competition then shifts to sales, general and administration expenses. These expenses will have to be slashed further to offer competitive rates at profitable margins.
Consumer demand will not increase enough in 2015 to counterbalance the excess capacity needed to return to profitability. VSA agreements will have to voluntarily reduce capacity for all partners uniformly. This could be a risky endeavor that may have its own intrinsic costs offsetting potential savings.
Carriers are turning more to the intermediary market to offer their services at wholesale rates to generate much-needed volume. Now faced with diminished services and support usually offered by the carriers, the OTI/NVOCC’s role is all the more important. OTIs will fill a void in the market short-term in the hope of filling cargo capacity while carriers contemplate other cost-cutting scenarios. Outsourcing may be a beneficial short-term solution, however, a turnaround on rates may be a longer-term struggle, and it could be a very long time before we return to profitability.
Joseph T. Saggese, Executive Managing Director, North Atlantic Alliance Association