Harbour Link Blog Archive
Posted 2016-09-22 by Harbour Link in opinion
According to shipping pundits, the overcapacity of container shipping, which is reported to have put Hanjin into bankruptcy, is likely to claim another carrier before the market rebounds. Whether, this actually takes place remains to be seen, but it is reasonable to assume that if the container shipping sector continues to operate at unsustainable rate levels, further concentration within the sector will occur.
What is clear, the Hanjin crisis has resulted in spot rates on key shipping lanes being increased, but these higher spot rates are not foreseen to continue beyond the current peak season.
A permanent rise in rates, which is the panacea needed by the shipping lines to return their businesses back to stable business enterprises, will require an overall reduction in shipping capacity. This will not take place with Hanjin’s demise. Instead, the ships that operated under Hanjin colors will likely re-emerge back into the market under new owners. Couple this with the major changes that have occurred through the realignment of global trade and the changing dynamics of container shipping, it would appear there simply is not enough remaining cargo to support the mass of today’s global fleet to enable the shipping sector to regain profitability in its existing form. Concentration of ocean fleets is needed and how this will unfold, given the scale of tonnage and new buildings on the stocks, one can only contemplate the permutations to reset the pendulum to balance demand with supply.
A parallel to what is taking place in global shipping is presently occurring in the trucking sector at the Vancouver Gateway. Vancouver’s drayage sector is being threatened by the same dynamics that have placed the marine shipping sector in such dire straits of unprofitability. The Vancouver Gateway finds itself with a major oversupply of drayage carriers, each trying to outdo the other as they follow a “drive to the bottom” solution as the tool to competing with each other in the marketplace.
The factors of good service and reliability to match customer supply change requirements have diminished as a measure of commercial value in today’s marketplace. Instead the overriding factor is price and price alone.
In a nutshell, today’s cargo supply chain participants are being forced to board the unstable ship of diving to the bottom to outdo each other on price, because the lowest price has become the criterion each must achieve to remain competitive and to secure business. The end result; most traders and members operating in today’s supply chain are struggling to sustain their businesses on borderline returns that stretch their limits to make ends meet. The normal business maxim to achieve sustainable (fair market) rate levels in today’s marketplace has become an impractical expectation.
A positive element in the struggle to compete has been the creative resourcefulness displayed by successful entities like Harbour Link to achieve cost saving synergies and to enhance supply chain efficiencies for the betterment of their business and customers.
The customary Canadian presumption that others will intervene to resolve the continuing spiral downward to self-annihilation is an absurd expectation and quite unrealistic. Yes, action must be taken to correct matters before it is too late, but as we learnt from the intervention by Government in 2015 to regulate the drayage sector through the passage of the BC Container Trucking Act, the Act failed as a panacea to eradicate malpractice and port interface issues. It did, however, provide a huge monetary win-fall for drivers and brought general wage parity to the TLS drayage sector.
The very fact so many drayage carriers exist and are competing for a share of a shrinking market, has become the fuel for the fire that is causing the spiral downward to unprofitable rate levels.
The solution to getting the drayage sector back to a stable and viable level, requires an overall reduction in the number of drayage carriers. This is best achieved through the consolidation of the sector through a process of acquisition and mergers between the existing carriers and the closure/withdrawal by those unable to continue to sustain their businesses on a viable basis. Such a consolidation must be a business initiative taken by the drayage sector to return to supportable rate levels and rebuild the sector to be a viable and maintainable business enterprise.
Port of Vancouver and the BC Container Trucking Commissioners office can assist to propel such an initiative by raising the bar of accountability on TLS Licensees, such as to:
- Adjust the annual cost of the TLS License.
- Stop permitting small TLS carriers to jointly share a common TLS License.
- Stiffen the enforcement covenants of TLS licensees.
- Remove/cancel underutilized TLS tags assigned to licensees.
- Do not permit the transfer of truck tags issued to Licensees that close/withdraw from the drayage business.