A headline in yesterday’s Wall Street Journal, Trade Slump Swamps Maersk, (paid subscription may be required) should be noteworthy to supply chain professionals. A.P. Moller Maersk AS, the world’s biggest freight and ocean container shipping line reported its first full year loss since the company was founded in 1904. It is a somber testimony to the collapse of global trade during 2009. Maersk suffered an overall $1.31 billion dollar loss in 2009, after a $3.33 billion profit in 2008. Its container shipping business was reported to have a $2.1 billion loss, after making $583 million in 2008. Company officials also pointed to 2010 as being only a bit better.
To anyone involved in supplier sourcing, procurement and logistics, this news is of little surprise. The effects of this unprecedented global recession took its toll among the Asian based manufacturing regions. A Supply Chain Matters May 2009 commentary referred a frontline New York Times article noting that 735 cargo ships had been sitting idle off the coast of Singapore awaiting some form of cargo. Similarly, 300 ships were idle outside the port of Rotterdam and 150 in the Straits of Gibraltar. To add even more burden, the ships that were operating with cargoes had to endure increasing incidents of piracy off the coast of Somalia, leading to increased insurance and operating costs.
With even more new ships coming into service, carriers are now laying-up even more ships, reducing costs as much as possible including steaming slower at sea to reduce fuel consumption. The WSJ article notes that around 12% of the global fleet is idle at this point.
The good news for shippers is that enormous buyer advantages remain in negotiating shipping contracts. The CEO of Maersk notes that carriers have too long neglected the less-profitable “backhaul” shipment of goods from U.S. ports to Asian ports. Any U.S. exporter should be in the drivers seat for contracting ocean transportation. The not so good news is that overall transit times will remain slow unless you are willing to contract for a fast ship.
In my mind, a more important concern is when global trade, if ever, returns to pre-2008 volumes. There is a lot of idle asset capacity that will need to be dealt with.