The condition of the container carriers is desperate: a soft global economy and a tremendous amount of container capacity to fill, and reports of steep financial losses add to the discussion.
With the exception of a few cargoes, namely refrigerated and hazardous, the cargo that’s currently moving with the container carriers is doing so at less than compensatory rates. In fact, it “appears” that shippers, like their bulk brethren, can purchase container space like buying grain by the ton.
Unfortunately, this will indeed be the ongoing state of the container carriers for at least the next year. As Brian Conrad, executive administrator of the Transpacific Stabilization Agreement, which includes 14 of the largest liner companies, told American Shipper in this issue, it’s next to impossible now for the carriers to differentiate pricing based on what goods are inside their containers.
The reshuffling of the container carrier alliances into three larger ones—2M, OCEAN Alliance and THE Alliance—doesn’t help this perception of emerging commoditization either. Shippers are more aware today that they can purchase container transport from carrier A, while the box will actually move on board the vessels of either carriers B, C, or D in the alliance in which carrier A participates. In the eyes of the shippers, how does that carrier distinguish its service to justify a rate difference with the others in the alliance?
Cheap container freight rates may feel good to shippers at the moment, but the long-term implications will likely prove far more costly than those short-term gains. Any industry like the container carriers that continues to suffer steep financial losses will eventually be unable to provide reliable service and risk further acquisitions and mergers, further limiting freight transportation choices for shippers.
And this service deterioration is already apparent, as Don Pisano, president of American Coffee Corp. and chairman of the National Industrial Transportation League's Ocean Transportation Committee, explained to American Shipper that many small and midsized shippers are experiencing “new lows” and delays when it comes to carrier customer service in terms of fixing problem shipments and amending service contracts.
However, in reality, rates are not really being commoditized, rather in our view they are being flattened due to the imbalance between demand and supply of containership capacity.
While the container carriers scurry to correct their operations by realigning staff, capacity and services, large and knowledgeable shippers could assist them by offering realistic recommendations on what they desire in terms of service and reliability, and perhaps how they can be implemented. Once the shippers see improved service levels—and that may take a year or so—more compensatory and differentiated rates will thus follow for the carriers.