What in the World is Going On?!

Rick Brumett
Rick Brumett
Vice President – Client Solutions
Transportation Insight

Have you ever sat in a movie theater, and 15 minutes into the movie you say to your spouse, “Haven’t we seen this movie before?”

That is the same feeling I get when looking at the current state of international shipping. It feels like 2009 all over again. Many of us still have the bruises from the global economic collapse that occurred in the fall of 2008. The resulting effect in the world of international logistics was near catastrophic. Those involved in international sourcing were educated to the concepts of “emergency surcharges,” container bumping, capacity manipulation, parking of vessels, etc.

What In The World
In reviewing the financial results of many of the primary players in the global logistics world, 2012 is taking on many of the characteristics of 2009. Many reasons are given:

  • The global economy remains weak, creating less demand for container volume.
  • As labor and other costs continue to rise in Asia, the economic benefits of offshore outsourcing are less certain, creating lower container volume.
  • The Japanese Tsunami and resulting supply chain challenges caused many importers to rethink leveraging too much of their capacity in Asia.
  • New terms are hitting the global world; near shoring and re-shoring. Both mean the same thing; container volume is leaving Asia.

Regardless of the reasons, container volume is down and the financial impact has been felt by the vessel operators. Shipping firms, banking on rapid trade growth, began ordering new vessels in 2007 and 2008, many of which are being delivered this year. They face severe overcapacity just as demand, particularly on the once lucrative routes between Europe and Asia, falls through the floor. In light of the shipping lines reporting huge losses at the end of 2011, they have no recourse but to stick together, decrease capacity, and raise rates. And they have proven they can do just that.Container Ship Transportation - Transportation Insight

From the perspective of a buyer of international logistics services, the result will be major price challenges in 2012. Maersk, sometimes seen as a barometer of world trade as its fleet makes up roughly 16 percent of container shipping capacity, says it expects the shipping markets to remain difficult for some time as a result of overcapacity. Maersk Line recently announced that it would cut capacity on Asia-Europe routes by 9 percent to combat low freight rates, a move that analysts have called a strategy shift for Maersk, which had earlier tolerated losses. Capacity will drop as vessels are diverted or parked and rates will go up. Every quote will become a mission.

Industry experts that have been in the business 30+ years say they have never seen the industry like it is today. Even “plain vanilla orders” require an immense amount of work for a small profit. Customers continue to try to cut costs in a market where there is nothing on the horizon but rate increases.

Given all that, most agree there has never been a better time for importers/exporters to consider lining up with the right third-party logistics provider. Reputable third patry logistic companies (3PL’s) like Transportation Insight devote considerable time helping clients with international transportation needs by leveraging capacity and buying power.

As we look ahead, there are current discussions regarding a second General Rate Increase (GRI) in 2012, and maybe even a third prior to the normal May 1st GRI. Most logistics industry experts will also tell you that record peak season assessorial charges are looming.

Global Transportation - Transportation InsightAs an example of rising costs, while sitting here writing these thoughts, I received an email stating Asian to Europe spot container rates have gone up 114% in the past 7 days. Not 14%…114%.

Hang on folks; it is going to be a bumpy international ride.