Vanguard Logistics Services

2009 is shaping up to be an inflection point. Our contention is that a disproportionate impact will be felt by those who did not previously invest in extending their infrastructure, particularly in the addition of owned offices, warehouse facilities and information systems. Most neutral NVOCCs, Vanguard being among the few exceptions, depend heavily on networks of affiliated agents. These agency relationships are exposed because they lack visibility of financial information among members, with the whole structure being as strong as the weakest member of the alliance. Take, for example, the exposure to a large client to whom credit has been injudiciously extended at an origin point. The lack of day-to-day visibility across an agency network, as there would be with your own infrastructure linked by a robust information system, causes the destination agents to be exposed to a flow-on effect. This kind of exposure is the antithesis of the kind of tight management of day-to-day details required to work your way through tough times. Our view is that this is likely to result in the inevitable rearrangement of alliances, with the stronger players looking to recast their arrangements, perhaps even opening up rationalization opportunities in the form of acquisitions and buy-outs for companies with strong balance sheets. We think 2009 will see an exacerbation of this pressure with the inevitable consequence that the strong will emerge stronger, with some pain, while the marginal players will inevitably succumb. We hope this pain can be minimized because it is in NVOCCs’ interest, and certainly in the interest of the wider ocean-based supply-chain industry, for standardization and continuity of service to remain.