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Seajet |
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Mid
January |
Where Is My Container???
Dear Customers and Friends of Seajet: Carriers are being forced by their bankers, governments and creditors to learn the lessons of supply and demand and have now realized that they are all fighting for their survival. Much like the so many people who got caught up in the tech bubble and then the housing bubble, carriers have been caught off guard as they walked straight into a shipping bubble. In the believe that shipping had no way but to go up, all of them aggressively invested heavily in new and ever larger vessels with the intention to be prepared for the ever growing global shipping demands. When in 2007/2008 it became clear that increases in demand for container space slowed they reacted as they have always done during such times. They started to reduce rates in order to attract cargo for their growing fleets of ships. By the beginning of 2009 it became clear that growth in 2009 would continue to decline and by May/June it was evident that growth was not only going to decline but shipping volumes had actually declined from previous years. By some accounts volumes declined to 2003 levels. Carriers, even though they had the luxury of antitrust immunity failed to exercise this privilege due to a complete lack of discipline and intelligence and instead followed their old habits not having learned anything from the years in the past; they lowered rates as never before which came as a nice and unexpected bonus for importers last year (and just in time during a difficult year). For the carriers though it meant that every container carried produced a net loss and increased the red ink on their balance sheets. Container ships were taken out of service, older vessels scrapped but it actually took them until the end of this year to adjust the supply of cargo space to the demand. This has then resulted in small rate gains by January 1st but it was nowhere near what was needed to recover from the losses made in 2009. By December carriers started refusing bookings or rolled them after accepting them. The artificial space shortage had become real! This allowed them to push through the Emergency Revenue Charge of $ 400.00/40’ effective January 15, 2010. All carriers stuck to it without exception. However, this is just the beginning of what they really want to do which is to increase rates by $ 800.00/40’ to the West Coast and $ 1,000.00/40’ to the East Coast effective May 1, 2010 (refer to earlier emails you can find under “News” and then “Archive” on the Seajet website). Currently the space shortage is made even worse due to the upcoming Chinese New Year and the rush to get cargo out prior to that date (officially February 15, 2010 though many factories will close even earlier). Thousands of containers are being left behind every single week now. It is expected that things will ease a bit after the Chinese New Year but it must be understood that if carriers want to push through the big increase on May 1st (contracts are being re-negotiated each year for effective date May 1) it is in their interest to keep supply low. And the banks, creditors, investors and governments will be making sure that the carriers understand and abide by this fundamental law. Other actions taken by carriers to return to profitability: 1.) Slowing the speed to conserve fuel. 2.) Selling assets such as buildings and shipping terminals. What does this all mean for you? It means that after enjoying falling prices for 2 years the cost of shipping will rise drastically this year. And until the pricing structures are such that it makes sense for carriers to re-deploy “parked” vessels and containers, space will be tight. Sooner or later one or more of the carriers will be unable to resist getting extra market share by deploying additional ships and this will be the beginning of a cycle during which rates will eventually decline again. However the time when this happens may well be longer this time as carriers have actually pushed themselves to the very brink of bankruptcy. It is for that reason that I expect space to be tight during the remainder of 2010 and possibly beyond. Just think of what it says about an industry that has antitrust immunity and manages to almost compete itself out of business! How greedy or stupid can one get? What can you do to protect your business? You can push your orders forward as much as possible and push your suppliers to make their bookings as early as possible and deliver the containers as much prior to the cut off as allowed (typically 1 week prior to cut off or arrival of vessel in the harbor at origin). Containers for which a booking has been accepted may be declined again if the container arrives at the terminal just a day prior the cut off. The earlier an empty container gets picked up from the terminal and the earlier it gets returned loaded the better the chance for it to get on board as booked and intended. What will Seajet and its partners do to help? We will do everything in our power to find a middle ground with the carries between price and the guarantee that containers are being moved as booked. Having said this, nobody knows where this will lead. Everybody is currently in the same boat (no pun intended). We are in daily communication with our partners in Asia who are doing everything to bring their market power (4th largest forwarder with Asia/America container volume) and connections to bear. Still, the fact that the demand is higher than the supply is still a reality for all. In ending I would like to say that we are all angry with the carriers as the current situation could have been easily prevented through responsible pricing policy during the recent period of declining demand. As much as lower rates were appreciated at the end I believe that stability and certainty is much more important in order to accurately price your products, forecast delivery schedules and run your business. Container space is a commodity no different than copper or steel. In the boom years of 2006/2007 the demand for raw materials increased rapidly and put enormous pressure on price which made it difficult for everybody to price their goods correctly and maintain delivery schedules as factories were scrambling to secure raw materials. The same pains are now being felt in shipping due to carriers having reduced supply and thus increasing the demand and price for the remaining capacity. Neither Seajet nor anybody else in our industry has anything to gain from the current situation. We only make money when we ship cargo. Increasing rates hurt our cash flow as the funds we outlay on your behalf increase. Please do not shoot the messenger. We do feel your pain and are on your side. I hope to have helped illustrate the current situation and am attaching a number of articles from the Journal of Commerce in support of my comments above. NYK Cutting Fleet And Plans Restructuring As always, please feel free to contact us at any time if you have questions or require additional information. Thank you for your support. Best regards,
Andreas Bauermeister,
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Seajet Express Inc., 46 Arlington Street, Chelsea, MA 02150 - Telephone 617.884.0991 - www.seajet.com |
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