Optimism characterizes inaugural Southeast Freight Conference

By Peter Hull

CHARLOTTE As the global cargo industry starts its slow pull out of the deepest recession in generations, the theme of the inaugural Southeast Freight Conference was as much about the economy as it was about freight.

And if there was one word to sum up the mood among conference attendees and speakers alike, that word was optimism. It’s a sentiment that many industry leaders, battered by the economic slump, see as essential to recovery.

From coast to coast, U.S. cargo ports have endured double-digit drops in volumes as the economic doom and gloom grew into a full-blown recession.

As the flow of goods dried up, steamship lines anchored 10 percent of the world’s cargo fleet, and the worldwide economic slump gnawed into profits and productivity.

But the tide is turning, experts at the conference said.

Gordon Dorsey, Maersk Line senior vice president and the shipping giant’s U.S. operations manager, told the conference during his keynote address that the shipping industry has endured the toughest of times, and now we must hope that market
conditions improve.

Hope isn’t much of a strategy, he said, but it is part of the mindset necessary to take advantage of the opportunities the transportation industry offers.

“The key is optimism,” Dorsey said. “Hope fosters optimism.”

The slowdown also has been a time for pause — and for a reality check.

While the recession stopped the flow of cargo, idled vessels and left terminals standing empty, certain elements of the cost equation did not follow suit, Dorsey said.

Container shipping companies are “bleeding money,” he said. Costs have not fallen, leaving steamship lines facing
combined losses this year in excess of $20 million.

“The current situation of container shipping in the U.S. is unsustainable,” Dorsey said. “Something has to change.”
Dorsey said his optimism lies in the changes that will be made as a result of this recession. For Maersk Line, “it’s all about the customer,” he said.

“This economic crisis provides us with an opportunity to listen to our customers — to really listen,” Dorsey said. “We need to listen and adapt.”

As the economic meltdown took hold, many ocean carriers reacted by cutting costs. Staff reductions, cut services, formation of strategic partnerships and other streamlining measures all played out. The industry has done all it can do, he said.

“But you can’t cut your way out of a crisis,” he said. “And quite frankly, we’ve picked all the low-hanging fruit.”

Shipping rates “absolutely” must increase, Dorsey said. Current rates are outdated, but such measures require companies like Maersk to work closely with customers and shift with the changing environment.

Put simply, “Cargo will follow the path of lowest cost,” Dorsey said.

Are we there yet?
Arguably the boldest statement during the conference came from Matthew Martin, senior vice president for the Federal Reserve Bank of Richmond and Charlotte regional executive.

“As I stand here today I’m going to make the bold statement that the recession is over,” Martin said. “It’s not boom-time again. It just means the slide has stopped.”

Just a year ago, the world was a far more uncertain place. Lehman Bros. had fallen, and the unthinkable was becoming reality. But the recession is over, he said, and the U.S. economy has moved into the recovery stage.

What’s less clear is the shape the recovery will take. The weight of the recovery likely sits on the shoulders of consumers, Martin said.

Nationally, most forecasters are calling for a generally weak economy during the next year. The recession pushed consumer confidence down as many households saved what money they had, wary of what the future held.

The good news is that U.S. post-World War II economic trends show that the steeper the downturn, the faster the economy bounces back. It’s called the “beach ball theory,” Martin said. Push a beach ball hard into the water and it’ll spring right back up.

The Southeast is likely to reflect any national recovery, he said.

The recession hit the manufacturing and construction sectors hard across the Southeast. The silver lining, for the Carolinas, at least, is that the boom-bust of the housing market wasn’t as severe as in other parts of the region, such as Florida.

“That suggests the Carolinas are better positioned to recover,” Martin said.

Joe Bryan, vice president of transportation and logistics for consultancy firm Halcrow, said that there are signs life is returning to the global container trade, but believes it’ll be at least next year before the recovery gains any momentum.

Bryan said the global container industry is still in a slump, and he warned that the heady days of double-digit growth are likely a thing of the past. But the economic slump has hit the bottom, he said.

“There continues to be bad news, but the drivers generally are in the past,” Bryan said.

For the Southeast region, imports will grow at a faster rate than exports, he said, propping up any recovery. Growth will come in the 7 percent to 8 percent range but be patient.

“The rough stuff is behind us, but the recovery won’t feel like a recovery for a while,” Bryan said.

Sink or swim
About 150 people from an array of shipping and cargo industry companies attended the conference. They participated in roundtable discussions that included global shipping forecasts, the future of industrial property and distribution, and what’s next for Southeast port gateways.

One of the most popular sessions was the carriers forum.

David Bennett, vice president for global sales at Schneider Logistics and Cargo Business News columnist, said that the supply chain has become “a minefield” during the current economic climate.

The yo-yo effect of oil prices has wreaked havoc with logistic companies, and the impact has been dramatic. In July, for
example, oil ran at $147 a barrel. During the spring, it was $39 a barrel.

Since 2001, cargo volume raced forward at a pace that could not be sustained, he said. The net result of that trade growth was that long-term plans were based on short-term trends.

As companies continue to wrestle with the ups and downs of today’s marketplace, Bennett urged caution within the optimism.

“History shows that demand can return as quickly as it evaporated,” he said. “Stay vigilant.”

Perhaps the most sobering comment came courtesy of Mediterranean Shipping Co.’s Paul Hargett.

During the last year, imports have dropped by 20 percent. Five of the largest carriers saw volume decline more than 30 percent. Thirty-two of the top 40 lines saw volume declines in double digits.

Exports also are down more than 20 percent, and 18 of the top 20 lines saw exports fall in double digits.

And consider this, he said: the top 40 shipping lines carry 98 percent of the world’s cargo.

As a result, the future holds more vessel-sharing agreements and major reductions in ports of call. Furthermore, “someone big will exit soon,” Hargett said. “I don’t think there’s any way around it.”

As a group, the industry needs to understand the situation, he said, educate itself and accept the situation.

In This Issue

Up Front

News, Trends & Analysis
New Items

U.S. employment environment promotes import uncertainty

Supply Chain
How are you planning for the rebound?

Trade compliance often has a broader scope

Features
Optimism characterizes inaugural Southeast Freight Conference

Gateway at a glance: Northern California

Ports & infrastructure
Prince Rupert looks towards Memphis

Canada tries to standardize port performance metrics

Global players jockey over Arctic shipping routes

Port Products
Terminal management systems

Commentary
Roll up your sleeves for the next phase

On the Horizon
The Internet of 2020

Casualties