Liner carriers need to save themselves

  If there’s one thing the global economic crisis has demonstrated, it’s that the days are over when liner carriers based their business success off TEU counts and the size of their vessel fleets.
     

Big volumes and armadas of ships mean nothing if you’re losing tens of millions of dollars in desperately needed profits. And rapidly deployed measures, such as cutting freight rates to the bone in an effort to attract precious shipper cargoes and shedding new build orders, aren’t helping much.
     

AXS Alphaliner reported on June 8 that 340 ships with an aggregate capacity of 546,000 TEUs are in layup, and another 193 ships with an aggregate capacity of 769,000 TEUs in operator fleets are idle. Simply put, this means the ghost of excess won’t go away anytime soon. Chartered or not, the ship capacity is still there floating.
     

Based on analyses of 2008 financial results, various forecasts and interviews with industry executives, American Shipper’s annual “Who’s making money” report points to an even more disastrous financial year for liner carriers in 2009 and likely into 2010, making survival for some over-leveraged, middle-tiered operators increasingly questionable. Even if the economy improves tomorrow, it will take the liner carrier industry possibly another three to four years before the excess capacity can be absorbed by the international freight market.
     

No doubt the industry’s titans, such as Maersk, Mediterranean Shipping Co. and CMA CGM, will use their economies of scale to survive the economic downturn, and those carriers with government connections will receive enough subsidies and aid to prevent them from slipping under the waves.
     

However, the less-fortunate, middle-tier liner carriers need to rethink the way they manage their container-shipping services internally. While some efficiency may be gained through head count reductions and shedding of excess offices, these carriers should use this time to seriously upgrade their information systems to better manage the important details of their business, such as cash flow, asset management and customer service. As publisher James Blaeser points out in this month’s Shippers’ IT column, many of the liner carriers that were raking in big profits in the heyday prior to the crash operated on transportation management systems in the age-range of five to 10 years old, extremely outdated systems by any standard.
     

By taking the overall focus off capacity-based freight rates, which is the current mind-set in the industry, liner carriers should earn their future profits and loyalty from shippers based on the deliverable efficiency of their transportation services, rather than on the amount of containers their ships can handle.
     

Ultimately, there’s not much the shippers can — or should — do, given the circumstances and their own financial dire straits. To them it’s a gamble of relationships, betting on which lines are strong enough to survive. They will take what they can, until the carriers are strong enough to come back

 

(Source: American Shipper)