By: Gary Ferrulli

Gary Ferrulli — Wed, 22 Aug 2018 15:07:24 +0000

It doesn’t take a renowned detective to know that for decades the ocean carriers, and here I am talking container lines, have been poorly managed
as a business. The number of bankruptcies, mergers and acquisitions in the past 45 years is testimony as 75% of those in business then no longer exist. On average, a 3% rate of return; industry losses in 6 out of the last 7 years. Freight rates 50% of what they were 20 years ago.
They have had three opportunities in the last 8 years to take actions to reverse decades of poor financial results: in 2011 they were coming off of a year where the industry made $8. Billion (2010), which was amazing considering that they lost $21. + Billion in 2009. Close to a $30. Billion swing, based on
one issue – manage capacity. They anchored over 600 vessels beginning late in 2009 and throughout 2010. Then 2011, anchors up, overcapacity and
chasing volume and market share. The beginning of 6 consecutive years of losses. Next, in 2016 as Hanjin went out, their considerable cargoes were
spread among the survivors. Rates rose for four months, then capacity was added, rates dropped and another year of losses. Now today. Having made
the mistake of watching fuel prices rise for 18 months and do virtually nothing about it for 14 of those months, they finally remove capacity in major
east-west trades and the spot markets rates jump to profit making levels – but only for spot market cargoes as contract cargoes get no GRI, nor do they pay the fuel surcharges. Still, a significant step in the direction of profitability. After a horrible first half in 2018, they may actually make money in the second half. Then what? Will they take the business model they created during the second half of 2018 and use it in 2019? Take contracted rates up to reasonable levels and implement fuel surcharges for all cargo? Or revert to historical decisions to add capacity, chase volume and market share using price as the catalyst, and return to losses? It’s decision making that makes the difference and for decades it has not been one with stellar financial results. The opposite.

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By: Gary Ferrulli