Global business network CNBC interviewed the CFO of Maresk Line, the current industry leader in global ocean container shipping and the responses should capture the attention of global manufacturers, retailers and their procurement and transportation management teams.
In the interview, Maersk CFO Jacob Strausholm indicated to CNBC Europe interviewers that “the worst is over for the global shipping industry but so are the glory days.” In the view of Supply Chain Matters, that is both good and not so good news, but perhaps not in the context of what readers may be thinking.
By our view, the good news is that the industry is finally acknowledging that the glory days of double digit annual increases in container shipping volumes has come to an end. It is a testimonial that industry supply chains have become much more predictable in forecasting product demand and in more efficient inventory planning.
It was the basis of that inflated optimism that motivated multiple lines to introduce gross over capacity across the industry, while unsuccessfully attempting to extract high tariff rates from shippers. As CNBC notes from its interview, over the next two and one-half years, Maersk alone has plans to introduce into global service 20 new mega-ships, capable of transporting up to 18,000 containers with up to 35 percent less consumption of fuel.
Other competing shipping lines have be compelled to also order new mega-ships that will further continue to come on-line. There lies the not so good news, that in the coming months and perhaps years, a fleet of far larger but more efficient mega-ships may well be competing in a low-growth environment that has more implications for potential industry consolidation. There has already been an announcement of an operational alliance among the top three container lines to pool ship capacity among a collection of key global shipping routes. That alliance has yet to secure regulatory approvals.
Also in our view, these mega-ships that need to leverage high shipments volumes may well be initially deployed in the wrong shipping lanes because of the lack of port infrastructure upgrades to be able to load or unload such ships. Europe alone has yet to recover from the effects of a severe economic downturn and strategic ports could be challenged to secure the financial resources to build and deploy added port processing infrastructure. Similarly in the U.S., the lack of an overall strategic investment plan in upgrading U.S. based port and logistics infrastructure may delay the benefits of these mega-ships. The effects of the global economic crisis have further reinforced labor unions to resist demands for port productivity improvements.
Despite these challenges, an important industry milestone has occurred. The ocean container industry has begun to acknowledge its past miss-steps. The open question however remains that while the shipping industry has acknowledged the end of the glory days, global sourcing shifts and the movement toward moving production closer to the point of consumption may well add continuing challenges.