Call it a recovery if you want, but don't include ocean carriers in the picture. The economy is doing an excellent job of bouncing back without creating new jobs or boosting freight volumes. As a result, shipping lines are continuing to lose billions of dollars. Where's that bailout money when you need it?

Offering up this tale of woe for the holiday season was Ronald D. Widdows, president and chief executive officer of the NOL Group (www.nolgroup.sg) (better known to port watchers as the owner of APL). He spoke at a session on ocean transportation at the annual meeting of the National Industrial Transportation League (www.nitl.org) in Anaheim, Calif. He began with the good news: "The global economy looks to have averted the danger of spiraling into a global depression." The catch, he said, is that the growth of recent months has mostly been the result of government stimulus money, which "has not been spent to create jobs and infrastructure development."

So what we have is a vibrant stock market and people - more than 10 percent of them unemployed - sitting on their pocketbooks. "The flow of goods is blocked," Widdows said, "and will be so for some time."

"Ugly" is the word he used to describe the consequent plight of container lines. Check out these losses for the first half of 2009: N.Y.K. Line, $694m. Hapag-Lloyd AG, $680m. Cosco Container Lines, $671m. Maersk Line, $540m. It adds up to about a $6bn shortfall for ocean carriers over that period, and as much as $20bn for the full year. "The level of losses is very scary," Widdows said. "Everybody has taken a fair beating."

Widdows, who also serves as chairman of the Transpacific Stabilization Agreement (www.tsacarriers.org), restated the case that the group has made repeatedly in past months: under current conditions, not all carriers will survive. "There will be bankruptcies," he said, adding that lines today "can't afford to run ships." That's why nearly 2 million twenty-foot equivalent units (TEUs) of capacity sit idle today, mostly moored off the coast of Singapore.

The eastbound TSA and its sister organization, the Westbound Transpacific Stabilization Agreement (www.wtsacarriers.org), have announced big rate increases to stem the flow of red ink. But the groups are merely discussion agreements, and members aren't bound by their pronouncements. So in recent months they've been battling to outdo one another on rate cuts, even as they present to the public a veneer of unity.

"The losses will probably continue into 2010 if not longer," Widdows predicted. "It's going to be another difficult year." In fact, the audience at an earlier NITL session predicted that among all modes of transportation, only truckers will have a tougher time than container lines in keeping rates up. (See my previous post, http://www.supplychainbrain.com/content/blogs/think-tank/blog/article/font-size2notes-from-nit-league-i-whats-your-favorite-letterfont/).

Expect the crisis to have a major impact on service. Ship speeds will slow, as carriers cope with rising fuel prices and adopt "greener" operating practices. Transit times will degrade, and the choice of service providers will narrow. Only those lines with strong financial backing - in the form of government support or deep pockets - will survive, Widdows said.

Longer term, he sees some relief from overcapacity as lines take a saner approach to adding new and bigger ships. We've heard that song before, but this time operators might have no choice but to behave. "Ship finance has probably changed forever," Widdows said. "The ability of two guys and a dog to go out and get a billion dollars for ship financing is gone forever."

What would also be gone, if many shippers had their way, are cartels like TSA and WTSA. Polled electronically, 54 percent of the audience called for an end to antitrust immunity for liner operators. NITL, as a group, agrees. "We do have a problem with discussion agreements in ocean shipping," said president and CEO Bruce J. Carlton, at a League press conference earlier that day. Terry Bunch, director of logistics and customer service for Rayonier, added that ocean freight rates "should be based on individual relationships between buyer and seller - not jointly negotiated."

Shippers don't think carriers are crying wolf about their financial plight. The current situation "is just not profitable for carriers," said Mark Maleski, senior merchandise supply chain manager with J.C. Penney Co. "Carriers have to make money, too." At the same time, he said, the lines "need to do something to establish rate stability" -- a dilemma that has persisted for years.

Widdows didn't sound much more complimentary of TSA's effectiveness. "If judged purely on rates, it's a fairly miserable, inept group," he said. Nevertheless, he sees value in its continuing existence - particularly if member lines do a better job of engaging the shipper community. Currently the group is conducting a series of shippers' forums around the country, to make the case for higher freight rates and stronger relations with its customer base.

What TSA lines are likely to hear are comments like those of Martin Bernstein, director of transportation excellence with J.C. Penney Logistics. He complained of service disruptions caused by sudden changes in sailing schedules and capacity levels. "Reliability of service is even more important now," he said, adding that "shippers are fighting the same battles [as carriers]."

As for the prospects of economic recovery in 2010, "not many people think there will be a quick bounce," said Widdows. The best hopes might be for a modest improvement in consumer buying and the job market over the coming year.

And the worst-case scenario? "You're breaking your furniture and using it for cooking," said Widdows.

- Robert J. Bowman, SupplyChainBrain

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