Executive Briefings

Odds and Ends at Year End

Coal in the stocking: The latest announcement of a proposed rate increase by member lines of the Transpacific Stabilization Agreement (www.tsacarriers.org) was as much of a surprise to shippers as a Christmas present wrapped in clear cellophane. TSA had been moaning publicly for months about the billions of dollars its members were losing because of a down economy and their inability to hold the line on rates. Everyone knew that a big increase was coming, even before the current batch of service contracts expired. The twist in December's announcement came in the precise form of that action - a so-called "Emergency Revenue Charge" ranging between $320 and $505 per container, depending on equipment size. Some of us remember, many years ago, having a good laugh when a rate-making conference in the Latin American trades imposed what it dubbed a "Revenue Recovery Surcharge." So much for the idea that surcharges were supposed to cover discrete carrier expenses that were quantifiable yet variable, and therefore needed to be broken out from the base rate. Now, instead of an RRS, we have an ERC - or, to put it another way, a We Need More Money Surcharge.

In a statement accompanying the bad news, TSA chairman Ron Widdows repeated his mantra of recent months about the choice between higher rates and fewer carriers in the trade. Jack Yen, president of Evergreen Marine Corp. and a member of TSA's Executive Committee, described the ERC as a necessary "bridge" to help carriers survive the first half of 2010, in the run-up to the next round of service contract negotiations. And shippers don't exactly disagree. Bruce Carlton, president and chief executive officer of the National Industrial Transportation League (www.nitl.org), says ocean carriers ran into a "perfect bad storm" over the past couple of years. Pretty much everyone was hypnotized by the same shimmering bubble in housing, the stock market and consumer demand, he says, but the shipping industry was hit especially hard because it "raced to shipyards to order new tonnage while the world was perking along at what we now know were unsustainable economic peaks." Carriers then had to slash rates in order to keep their shares of a shrinking market, even as they were laying up ships by the hundreds. Now they need a personal bailout fund from their customers.

But what about this ERC business? Carlton hasn't encountered the term in his 30 years of working in ocean shipping. On the other hand, unprecedented times call for unprecedented solutions. "I don't think any of our peers have ever seen anything like this," he says. And what's in a name, anyway? One way or another, shippers are going to have to pay up.

                                                     *     *     *

But we'll buy you a bus pass: While shippers agree that the plight of carriers is dire, many are unhappy with the antitrust protection that discussion agreements like TSA continue to enjoy. They prefer one-on-one negotiations to dealing with collective bodies, ineffectual though such groups might be. And they argue that the lines need to do a much better job of controlling their costs. At least one provider appears to have heard them. Horizon Lines, Inc. (www.horizon-lines.com), the U.S. domestic carrier, recently eliminated a slew of perks to which its top executives had been long accustomed. No longer will the company pay for their automobiles or country club memberships. Still, they'll manage somehow - Horizon is boosting their base pay to partially make up for the loss.

                                                      *     *     *

Freight can take the bus, too: Just in case you thought that freight had a lock on a big chunk of those stimulus funds for rebuilding the nation's infrastructure, consider this recent proclamation from Smart Growth America, the U.S. Public Interest Research Group and The Center for Neighborhood Technology. They claim that investments in public transportation arising from the American Reinvestment and Recovery Act (www.recovery.gov) have created twice as many jobs as spending on highways. Every billion dollars spent on public transportation generated 16,419 job-months, versus just 8,781 job-months for highway infrastructure projects. Their conclusion: "shifting available funds toward public transportation will increase the resulting employment." Perhaps they can throw in a few bike paths, while they're at it.

                                                     *     *     *

Supply chains, start your engines: Finally, I couldn't help commenting on the venue selected for the 9th annual Global Supply Chain Conference of the Neeley School of Business at Texas Christian University (www.neeley.tcu.edu) on Feb. 17, 2010. It's the Texas Motor Speedway in Fort Worth. The choice seems apt: supply chains depend on speed, fuel and endless repetitive loops. Occasionally they break down, lose a tire or collide with a competitor. And it takes one heck of a pit crew to keep them moving.

Happy holidays, and best wishes for the new year. Here's hoping we can all avoid spinouts.

- Robert J. Bowman, SupplyChainBrain

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Coal in the stocking: The latest announcement of a proposed rate increase by member lines of the Transpacific Stabilization Agreement (www.tsacarriers.org) was as much of a surprise to shippers as a Christmas present wrapped in clear cellophane. TSA had been moaning publicly for months about the billions of dollars its members were losing because of a down economy and their inability to hold the line on rates. Everyone knew that a big increase was coming, even before the current batch of service contracts expired. The twist in December's announcement came in the precise form of that action - a so-called "Emergency Revenue Charge" ranging between $320 and $505 per container, depending on equipment size. Some of us remember, many years ago, having a good laugh when a rate-making conference in the Latin American trades imposed what it dubbed a "Revenue Recovery Surcharge." So much for the idea that surcharges were supposed to cover discrete carrier expenses that were quantifiable yet variable, and therefore needed to be broken out from the base rate. Now, instead of an RRS, we have an ERC - or, to put it another way, a We Need More Money Surcharge.

In a statement accompanying the bad news, TSA chairman Ron Widdows repeated his mantra of recent months about the choice between higher rates and fewer carriers in the trade. Jack Yen, president of Evergreen Marine Corp. and a member of TSA's Executive Committee, described the ERC as a necessary "bridge" to help carriers survive the first half of 2010, in the run-up to the next round of service contract negotiations. And shippers don't exactly disagree. Bruce Carlton, president and chief executive officer of the National Industrial Transportation League (www.nitl.org), says ocean carriers ran into a "perfect bad storm" over the past couple of years. Pretty much everyone was hypnotized by the same shimmering bubble in housing, the stock market and consumer demand, he says, but the shipping industry was hit especially hard because it "raced to shipyards to order new tonnage while the world was perking along at what we now know were unsustainable economic peaks." Carriers then had to slash rates in order to keep their shares of a shrinking market, even as they were laying up ships by the hundreds. Now they need a personal bailout fund from their customers.

But what about this ERC business? Carlton hasn't encountered the term in his 30 years of working in ocean shipping. On the other hand, unprecedented times call for unprecedented solutions. "I don't think any of our peers have ever seen anything like this," he says. And what's in a name, anyway? One way or another, shippers are going to have to pay up.

                                                     *     *     *

But we'll buy you a bus pass: While shippers agree that the plight of carriers is dire, many are unhappy with the antitrust protection that discussion agreements like TSA continue to enjoy. They prefer one-on-one negotiations to dealing with collective bodies, ineffectual though such groups might be. And they argue that the lines need to do a much better job of controlling their costs. At least one provider appears to have heard them. Horizon Lines, Inc. (www.horizon-lines.com), the U.S. domestic carrier, recently eliminated a slew of perks to which its top executives had been long accustomed. No longer will the company pay for their automobiles or country club memberships. Still, they'll manage somehow - Horizon is boosting their base pay to partially make up for the loss.

                                                      *     *     *

Freight can take the bus, too: Just in case you thought that freight had a lock on a big chunk of those stimulus funds for rebuilding the nation's infrastructure, consider this recent proclamation from Smart Growth America, the U.S. Public Interest Research Group and The Center for Neighborhood Technology. They claim that investments in public transportation arising from the American Reinvestment and Recovery Act (www.recovery.gov) have created twice as many jobs as spending on highways. Every billion dollars spent on public transportation generated 16,419 job-months, versus just 8,781 job-months for highway infrastructure projects. Their conclusion: "shifting available funds toward public transportation will increase the resulting employment." Perhaps they can throw in a few bike paths, while they're at it.

                                                     *     *     *

Supply chains, start your engines: Finally, I couldn't help commenting on the venue selected for the 9th annual Global Supply Chain Conference of the Neeley School of Business at Texas Christian University (www.neeley.tcu.edu) on Feb. 17, 2010. It's the Texas Motor Speedway in Fort Worth. The choice seems apt: supply chains depend on speed, fuel and endless repetitive loops. Occasionally they break down, lose a tire or collide with a competitor. And it takes one heck of a pit crew to keep them moving.

Happy holidays, and best wishes for the new year. Here's hoping we can all avoid spinouts.

- Robert J. Bowman, SupplyChainBrain

Comment on This Article