Commentary

Merry Christmas?

By David Bennett
Vice President, Sales & Development, Globe Express Services

Each night on my way home, I tune into Bloomberg News to catch up on the day’s financial news. As I prepare my thoughts for the December column, I find myself wondering just how bad the news will be when I commute home this autumn evening.
Every report I’ve been able to lay my hands on in recent weeks reflects a significant downturn in cargo volumes on the two key head haul lanes — Asia/North America and Asia/Europe. End of third quarter earnings reports have essentially wiped out any hope of a quick stock market recovery, and retailers are predicting horrible numbers as we enter into the holiday shopping season. Europe seems to be heading into a deep recession, and I would presume that if we weren’t dealing with the current “election” propaganda, our elected officials would stop implying that we are trying to “avoid a recession” and admit that the economy has already entered one.

Winter Forecast
Over the years, I’ve been asked to speak to various trade groups at conferences and to share my view on market conditions impacting our industry for various trade publications. The questions as we enter this Christmas season are: just how badly will this vital period affect retailers who rely on consumer spending? And exactly how bad has this economy become?

Fortunately, the readers of Cargo Business News have the expert opinion of a world-class economist like Dr. Walter Kemmsies, who can shed much more light on the subject of the economy than this amateur can. However, I am going to take a stab at it.

Positive Developments
Based on the trends we are seeing from carriers serving the Transpacific trade, we should expect positive developments in the coming weeks and months that will help offset higher shipping costs introduced earlier this year. Carriers are implementing aggressive capacity reduction programs, and I suspect that it will become a long-term strategy, unlike previous years, when capacity was temporarily withdrawn only in the “slack season.”

As demand weakens, rates typically soften. And with trade volumes moving in the wrong direction, we should experience relatively stable rates once fuel costs level from their peak in July.

Carrier Changes & Trade Growth
Everyone in the industry is aware of the new tonnage coming on line over the next 12-36 months, and the question on everyone’s mind is “how will carriers deploy this tonnage without creating a rate war in key trade lanes?” In spite of this new tonnage, I would caution shippers not to get too excited about the potential of further declines in rate levels. Plans being discussed are aggressive and include: scrapping old vessels, off-hiring charter vessels, and implementing slow steaming procedures on the longer routes that will help alleviate high operating costs in a volatile oil market.

Despite these hard economic times, some trade lanes are actually growing! That’s not a misprint….markets in Latin America are a source of optimism within the industry, and with new terminal developments underway in Peru, I would look for some tonnage to be deployed in this region. Carriers have learned that they must be flexible in terms of deploying tonnage where revenue opportunities prove favorable.

Improvement on the Horizon
The reality is, our weak economy will not produce favorable results for the retailers this holiday shopping season. However, I choose to take an optimistic position and hope that improvement in our economy is on the horizon. Credit remains relatively “tight,” with banks being more responsible in terms of not extending credit to everyone who can sign on the “dotted line,” but for companies and individuals who have excellent credit histories, access to funds remains “cheap.”

Home prices have come down to levels that are attractive to the right buyers now, and with oil prices moving back down to reasonable levels, we have some key economic indicators that should lead us in the right direction as we enter into the New Year.
It wouldn’t hurt any of us to do without some items this holiday season and get back to the basics of what the season should really be about to begin with. So don’t let this current crisis ruin your holiday festivities. Prepare for the next wave of strong economic cycles because, as history has demonstrated over and over, things will improve.

On behalf of my colleagues worldwide at Globe Express Services, I wish everyone happy holidays and a prosperous New Year!