Thursday, October 27, 2011

US Container Shipping - WSC Boss Points Out Not to Trust Freight and Logistics Analysts

Koch Addresses House of Representatives Committee on Port Futures
Shipping News Feature

US – A statement given on the ‘Economic Importance of Seaports’ yesterday by Christopher Koch, President and CEO of the World Shipping Council (WSC), covered many points which will be of interest to freight forwarders and other logistics professionals who have any stake in the American commercial transport market. Despite the proposed subject, interests from road haulage and rail freight sectors will find points valid to their concerns as well as deep sea container shipping groups.

Mr Koch was addressing the House Transportation and Infrastructure Committee Water Resources and Environment Subcommittee and his speech covered a diverse range of subjects, many of which will be common knowledge to industry insiders, but condensing a view which was both informative and somewhat troubling. One point which came across was the uncertainty which the future holds for US shipping if the wrong planning choices are made.

The WSC represents over 90% of the US containerised liner capacity and Mr Koch was careful to avoid covering isolated parts of the logistics infrastructure clearly understanding that the entire sphere needed reference, from inland waterways and local road haulage through highway infrastructure and rail and multimodal connectivity as well as the actual ports themselves.

Whilst pointing out that the parts of the freight transport industry financed and controlled privately, inland barge and deep sea traffic, road haulage etc., had generally little or no need for Government investment and were largely self financing, planning and reacting to individual sectors of the market, the situation of those parts under public ownership or influence were more likely to have problems.

Koch indicated that inadequate capacity in the ports was likely to suffer permit delays even when private funding was available and that funds to deepen port channels, vital to accommodate larger, new generation vessels, had been slow and insufficient. Improvements to rail freight connections could also be convoluted requiring private and public cooperation and tended to be individual schemes not possible to be covered by any generalised plans.

We have pointed out before how short sea container and general cargo feeder services in the US lags behind similar traffic in Europe mainly due to the Jones Act, this despite the complexities of inter country as opposed to interstate traffic, and Koch clearly believes the potential for growth in this area is limited. What he did achieve was a concise summation of the WSC view of the future of container traffic in the US and the unreliability of analysts the further ahead they tried to predict.

When it comes to the planning of infrastructure expansion Koch points out:

“Five years ago in containerized trade it was common to see trade projections assuming growth in the U.S. of 8 -12% per year for 20 consecutive years, with conclusions that we could be ‘maxing out’ our port capacity by about now. Such projections did not forecast the 2008/2009 recession, the questions today about the Euro and European sovereign debt, and other relevant events. Such projections cannot accurately predict future important questions either, such as real estate bubbles in China, or what kind of protectionist policies might be implemented and what kind of damage to trade they would cause.

“Both the maritime industry and policy makers must struggle with such uncertainties as they decide how much capital to invest in what kind of assets at what time. The current sluggish economy is certainly taking a financial toll on the liner shipping industry as capacity exceeds market demand, and ocean carriers’ financial losses this year are forecast to be at least in the hundreds of millions of dollars, if not more.”

Koch continued on to analyse the effect of the Panama Canal widening but made the point that port handling capacity in the US remains lamentably slow compared to other countries, particularly against the Asian – European trade where ‘the most recently ordered 18,000 TEU capacity ships’ (Maersk’s new Triple E class) were able to transit Suez and trade (presumably profitably) throughout markets en route to Europe from Asia.

This compares with Asian/US trade where unloading such large vessels might take a week, unacceptable to both importers and shipping lines, the average container vessel discharging in the US from Asia currently has around 5,000 TEU capacity and the increase in scale of vessel handled via Panama from the current 4,500 to 12,000 TEU in 2014 was unlikely to change the nature of services despite proposals to deepen locks and ports throughout the US to accommodate the larger ships. In fact the use of the larger vessels was likely to be difficult due to the increased load and discharge times.

Koch was anxious to point out that predictions of the effect on trade flows due to the deepening of US locks and channels and widening of the Canal presented dangerous ground. Panama authorities predicted a doubling in tonnage of the Canal’s throughput but factors like labour relations in US ports could have a major effect. Labour disputes in the West coast ports meant a slight increase in US East coast (USEC) trade over the past few years and few ports were currently as well prepared as places such as Norfolk, Virginia due to its pre-emptive berth deepening to 50 feet and the Heartland Rail Corridor connection.

Koch urged the Subcommittee to continue support for the Army Corps of Engineers channel deepening and maintenance projects, which had functioned successfully for over two centuries, whereby funding was dependant on individual need and funds allocated by port‐specific appropriations. He also predicted that one route which may open up is the extended use of transhipment ports with the Caribbean and Central America likely to accommodate larger vessels.

Containerised trade is dependant on numerous factors, geographic departure and arrival points, individual country’s economies, labour relations, vessel sizes available and profitable to private companies etc. Mr Koch managed to sum up accurately that no matter how carefully you plan ahead, without a crystal ball, there will always be an element of chance involved when it comes to predicting the future of shipping.

Christopher Koch’s statement to the House can be read HERE and evidence offered to the committee by other stakeholders including representatives from the Army Civil Works, the American Association of Ports and other leading port officials can be seen HERE.

Photo: Christopher Koch President and CEO World Shipping Council