Thursday, April 16, 2009

Once again folks, it's survival of the fittest

Today Drewry Consultants has announced almost the same thing I stated back on March 20th, 2009.

This is what I said

Various CEO's of international container companies keep saying there is a need to "restore market discipline", meaning they need to quit cutting rates.
... the 14 TSA carrier CEOs expressed their intention to avoid any further erosion of existing rate structures that have been undercut by deteriorating demand and bids by carriers to fill gaping capacity.

What these guys don't understand is, you can't restore market discipline by saying "don't do that". You restore market discipline by getting the supply more closely matched with demand.

This is what Drewry says

FAILURE to take the bold steps required to eliminate unwanted containerships will drive some lines out of business.

That is the verdict of Drewry Shipping Consultants in a report that urges ocean carriers to “act now” in order to survive the crisis which has seen freight rates plunge after a collapse of cargo volumes.

Box lines will have to lay up the biggest ships in their fleet and should be prepared to cancel newbuilding orders even if that means forfeiting downpayments.

“Operators who move fastest and are the most radical will be best placed for recovery in the long-term,” Drewry predicts.

Even so “we still expect some major operators to fail this year”, the firm warned after analysing how the industry has reacted to global recession.

What Drewry is forgetting is a lot of the tonnage out there is not owned by the carriers. It is owned by companies whose business is just to charter out ships. For them, something is better than nothing. Container carriers are off-hiring chartered tonnage, quite possibly to see it return and compete with them.

It will come down to survival of the fittest. I still predict 10% of the container carriers in international liner shipping, will go out of business in the next 2 years.

If you are a carrier and you want to survive, start working on your computer systems. Everyone's computer systems are outdated. Don't you folks every buy anything on Amazon?

A good computer system will reduce the cost of producing all that documentation, and will also allow your pricing staff to make intelligent pricing decisions.

You also need to be looking at companies like Fed Ex and UPS as examples of how to run a shipping company, not Maersk or Cosco.

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