Global Logistics and Supply Chain Strategies - May 2008 - (Page 14)

Is ‘Era of Trans-Pacific’ Ending? Maersk Chief Sees Higher Growth in Other Trades The trans-Pacific trade has dominated global container markets for several decades. But that picture might finally be changing. While overall container activity grew 10 percent in 2007, volumes from Asia to the U.S. West Coast were flat. Meanwhile, the trades between Asia and Africa, Europe and South America saw growth in the double digits, as high as 20 percent, according to Nils S. Andersen, partner and group chief executive officer of A.P. Moller-Maersk A/S. Speaking in Long Beach, Calif., at the annual Trans-Pacific Maritime Conference ocean carriers, they will keep on trying to improve their operating margins through higher freight rates and surcharges. “They need to find ways to pass cost increases on to the customer,” Andersen said. Bunker fuel represents the greatest expense, with carriers and shippers bickering over the best formula for allocating the increased cost. But carriers are struggling with many other sources of higher cost as well, related to the need for improving physical infrastructure and information systems, as well as coping with new requirements for increased security and environmental measures. “Margins in the trans-Pacific,” Andersen said, “are really razor-thin.” Visit www.maersk.com. Recession Is Here, But What Will It Mean for Shippers and Carriers in the Coming Year? Economic experts are finally acknowledging that the U.S. is in a recession. But they don’t necessarily agree about the impact and duration of the crisis. Speaking on a market outlook panel at the TPM conference, Michael Andrews, chief economist of PIERS Global Solutions, predicted a “moderate rebound” in the second half of this year. The improvement will be driven by the government’s fiscal and monetary stimulus efforts, he said. The dollar, which has been on a prolonged downward trend, should “stabilize and begin to firm in 2009,” he added. At the same time, he sees no end in sight to the U.S. housing crisis, which has led to a severe credit crunch made worse by rising oil prices. Andrews expects continued growth, if somewhat less than last year, in emerging markets such as India, Russia and Brazil. China’s economy, which chalked up growth of 11.4 percent in 2007, should grow by around 10 percent this year, he said. Paul Bingham, principal economist with Global Insight Inc., agreed that the U.S. is in a recession, but said the world economy won’t be in 2008. Still, the rate of growth in China will fall below 10 percent for the first time in 10 years, he predicted. “China’s export engine is slowing,” he said. And that will have a negative impact on other emerging economies. As for the trans-Pacific trades, he sees a continuing drop in U.S. imports from Asia, which were down 2.9 percent in terms of container volumes in 2007. “It’s going to get worse before it gets better,” Bingham said. Even with less cargo moving in the Pacific this year, capacity should remain tight, said Trevor Crowe, senior container shipping analyst with Clarkson Research Services. The reallocation of container slots—down 4.5 percent in the trans-Pacific last year, versus a 21-percent rise between the Far East and Europe—coupled with slower vessel speeds and the growing use of space-hungry highcube boxes, will keep the supply-demand balance from tipping in shippers’ favor. In fact, member lines of the Transpacific Stabilization Agreement recently reported “early successes” in their efforts to (TPM), sponsored by the Journal of Commerce, he said the transPacific trade “is heading for a period of stagnant growth.” Yet the dip in volumes has been more than offset by greater demand on other routes, and carriers are responding with major shifts of tonnage. Maersk has removed 30 percent of its trans-Pacific capacity and redeployed it to other markets. Such actions were responsible for a 4-percent decline in trans-Pacific container capacity last year. And it looks as though the trend will continue in 2008, with the rosiest scenario calling for 2-percent expansion of the U.S. economy and the worst seeing no growth at all. In fact, said Andersen, double-digit growth in the transPacific might not return for some time. Some observers, he noted, believe that the outsourcing of U.S. manufacturing to China—a trend that drove huge growth in the eastbound trade in recent years—has peaked. U.S. exports, meanwhile, are on the rise, but they’ll need to more than double in volume before having an impact on the historical imbalance in the trade. Andersen believes economic problems in the U.S. will affect global trade growth, but not to the extent seen in the previous down cycle. The Europe-Asia trade will continue to thrive, at least until European manufacturers achieve the same level of outsourcing to low-cost Asian producers as their U.S. counterparts. As for 14 MAY 2008 http://www.maersk.com

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Global Logistics and Supply Chain Strategies - May 2008

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