Shippers hope carriers will partner in meeting challenges, conferees told

Beneficial cargo owners are hopeful that ocean carriers will collaborate with them in mutually addressing challenges, according to commentary at the South Carolina International Trade Conference. International Paper Co.’s manager of international distribution, Marlon B. Jones, was among major shippers voicing such a view during sessions of the event, which was held Oct. 30-Nov. 1 in Charleston. “We had an opportunity to kick them in the teeth, and we didn’t,” Jones said, referring to carriers and the historic low freight rates of recent times, adding that shippers will soon begin finding out which container lines are reciprocally supportive. Jones said his Memphis-based firm, the world’s largest pulp and paper company, has been challenged to secure a sufficient supply of containers to load with its products and also has encountered difficulties in getting needed shipment information. “I want to know where my product is at all times, and, no, I’m not getting that,” he said. Jones called for a better balance between the interests of BCOs and carriers, but pragmatically commented, “I really want to see the industry become healthy, but my job is making sure my company is healthy.” Eastman Chemical Co.’s manager of North America marine, Klaus Schnede, said that, in his procurement role for the Kingsport, Tennessee-based global leader in specialty chemical production, he has found himself dissatisfied with customer service aspects of today’s heavily consolidated ocean carrier business. “Some of the carriers are going in a direction we don’t like,” Schnede said. “It’s tough to get hold of the right person to fix things when they go wrong.” Schnede said he believes it is imperative for carriers and BCOs to work together to provide an environment that is favorable to both parties. Schnede also expressed concerns about potential impacts of the International Maritime Organization mandate requiring use of cleaner-burning vessel fuels beginning January 2020, as well as the integration of the three major Japan-based container carriers – “K” Line, Mitsui O.S.K. Lines and NYK Line – to be effective April 2018. Ocean carrier executives speaking on the same panel attempted to assuage the shippers’ anxieties. Allen Clifford, executive vice president of Mediterranean Shipping Co., said he believes there is room for increased cooperation, including in getting containers where they are needed, and he reiterated that ocean rates “must be remunerable.” Clifford said the resin boom projected for 2018 through 2021 should be of greater concern than overcapacity as alliances deploy more bigger ships, noting that, when he joined the industry in 1978, there was talk of overcapacity amid questions whether it would be possible to fill that bygone era’s largest container vessels, which could hold a mere 3,000 twenty-foot equivalent container units, a small fraction of the capacity of the behemoths of today and tomorrow. Clifford also called for betterments in internal freight transportation infrastructure, including improving cargo flows via truck and rail, saying, “Without that, nothing is going to change.” Wolfgang Freese, president of Hapag-Lloyd Americas, said he thinks there is “room for improvement” in the U.S. container supply chain. For example, he said, the United States is rare in that, unlike in most other countries, container terminals typically are not operated on an around-the-clock basis. Maersk Line’s senior director of North America sales, Mario Giannobile, said collaboration is vital, stating that it is important for carriers to know what “reliability” means to customers and to then work together toward meeting such defined requirements. Another industry veteran, Bill Rooney, a former carrier executive who now serves as vice president for North America trade management for Switzerland-based freight forwarding giant Kuehne + Nagel, said in a solo presentation that he does not believe customers see a significant material difference between ocean carriers and their rates but that there’s room for enhancing BCO-carrier relationships. “The two things that can help the most are trust and transparency of information,” Rooney said.

One thing that throws off carriers, according to Rooney, is the high frequency of incidences in which shippers say they will have cargo for a particular sailing but ultimately do not. He said such “no-shows” currently represent between 15 and 20 percent of bookings in trans-Pacific trade. Rooney said the normal market response might be for container lines to impose penalties for no-shows, but such measures have yet to work, so, he said, the only answer for carriers might be to lower capacity. However, capacity is seen as going up not down, according to Tan Hua Joo, executive consultant for London-based industry data provider Alphaliner, who said he does not anticipate any deferrals in orders for larger containerships, including those with capacities upward of 18,000 TEUs. “All the owners want to take them as quickly as possible due to economies of scale,” Tan said, noting that, by 2020, the three major container carrier alliances look to take delivery of a combined total of 125 megacontainerships. Tan cautioned, though, “Capacity additions will impede further rate recovery.”

Tan said he sees independent container lines such as Hyundai Merchant Marine and Zim Integrated Shipping Services, which he defined as “marginal carriers,” continuing to struggle. But he said he does not believe stakeholders will allow such lines to wind up in bankruptcy, as was the case in 2016 for South Korea’s Hanjin Shipping Co. Ltd. Philip Damas, director and head of the supply chain advisory practice of London-based Drewry Shipping Consultants Ltd., said he believes BCOs face numerous challenges, including related to pricing and freight rates, securing of capacity, real-time end-to-end shipment visibility, longer outgate times associated with larger containerships and what he sees as a major structural shift toward “oligopoly” of ocean carriers.

“BCOs face both some old inefficient shipping industry problems and new e-commerce-related challenges in container shipping,” Damas said, going on to say, “Many new and emerging e-business solutions could address some of the challenges faced by shippers.” In another session, Valerie Jacobs, import compliance manager for Matthews, North Carolina-based Family Dollar Services Inc., which is responsible for shipments to more than 8,000 U.S. stores under Family Dollar and Dollar Tree names, underscored the importance of BCOs partnering with U.S. Customs and Border Protection, including in participation in CBP’s Importer Self-Assessment, Customs-Trade Partnership Against Terrorism and nascent Trusted Trader programs. “Compliance is such an important part of what you do on a day-to-day basis,” Jacobs said in addressing service providers as well as BCOs, intoning that program participation is well worth the efforts involved with admittedly “scary” application processes and ongoing procedures.

A CBP official, Brian J. McKenzie, said that, since he joined the agency in 1991, it has shifted from a “gotcha mentality” to a more collaborative stance. “We would rather teach people to do things right rather than catch them doing things wrong,” said McKenzie., who has served as a supervisory import specialist at the Port of Charleston and, most recently, a course developer and instructor at CBP’s Field Operations Academy in Charleston. (For reception photos, see page 21.) (Photos by Paul Scott Abbott, AJOT)