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Sustainable: The new buzz word By David Bennett Vice President, Global Logistics Sales, Schneider Logistics International “Sustainable” - the buzz word in our industry today - suddenly has everyone’s attention. In our industry, most notably with the recent announcement by the member carriers of the Transpacific Stabilization Agreement - a revenue recovery program that essentially mandates rate levels increase to “sustainable” levels. I have seen this word “sustainable” used so many times since the economic crisis began last year that it has me wondering: what does sustainability really mean? I did a quick search and was surprised by the different uses of this word … To provide someone with nourishment or the necessities of life To keep something in position by holding it from below To manage to withstand something in spite of it To experience a setback, injury, damage, loss or defeat To make something continue to exist (SOURCE: Encarta World English Dictionary) This word has suddenly shown up in everyone’s presentations and discussions with customers and prospective customers since the global economic crisis began, and started a downward trend in rate levels unlike any other market trend that anyone has experienced. I am guilty of overusing this word, myself. I checked previous columns and found myself warning everyone to proceed with caution in this environment because the rates in the market simply cannot be “sustained” for a long period without dire consequences. Looking at the variety of ways this word can be used, I find it interesting that our partners on the ocean carrier side of the transportation sector tell customers “we need someone to provide additional nourishment or the necessities of life because we won’t survive at current rate levels.” Translation: Hong Kong rate levels to Long Beach at $750 per 40 foot container and $1700 per 40 foot container from Hong Kong to Savannah can’t continue to be maintained because ocean carriers are losing millions of dollars! Rarely am I right in terms of making predictions, but please refer to earlier columns where I warned to “be careful in driving rates to the floor because they cannot be sustained without suffering consequences that will have negative impacts on your supply chain costs.” The losses being reported by the carriers are stunning, but I find myself wondering why they continued to take rates to “unsustainable” levels, knowing that each container they loaded would add to the mounting losses being reported. Let’s take a quick look back to September 2008 and see what was happening in the markets that led us to begin using this word “sustainable” over and over. Oil prices were hovering at $140 per barrel, resulting in the highest fuel prices ever experienced in the U.S. An unforeseen drop in consumer demand resulted as consumers had to shift buying patterns in order to have available funds to pay $4.00 per gallon for gas. Personal debt levels rose to record levels and home prices dropped almost overnight, resulting in a global banking crisis. Excess capacity in the trade resulted as carriers expected continued double-digit growth patterns in the major trade lanes of Asia to North America and Asia to Europe despite economic warnings that a major downturn was coming. What we learned over the course of the last 10 months is that oil prices in the $140-per-barrel range were not sustainable. Gas prices above $4.00 per gallon changed the driving patterns of consumers, resulting in a drop in demand that oil producers did not expect. Banks realized that creative mortgage plans and excessive personal debt programs could not be sustained. Carriers noticed that, in spite of their efforts to stir up demand by dropping rate levels to these non-compensatory levels, consumers simply put on the brakes until economic conditions improve. How do we get more stable market conditions to avoid some of the chaos that results from the harsh discussions taking place between the carriers and their customers? Discussions that are a result of asking for essentially a 40 percent increase in rates since contracts were signed less than four months ago? Are we prepared for a dynamic change in how our pricing structures for ocean transportation services are negotiated where rates move quarterly, based on demand? Keep in mind, the Europe market operates in this manner, where rates move up and down throughout the year based on market demand. This seems to be the direction carriers are trying to take to the market in the U.S. I would suggest this model might be more “sustainable” over the course of the year when market dynamics shift based on a variety of conditions. Are we prepared for this “sustainability?” I will leave the economic forecasting and predictions to the experts, such as Dr. Kemmsies of Moffat & Nichol, who contributes a column to this audience each month. However, I am willing to predict that carriers cannot sustain the current model without suffering the dire consequences I have been warning about in recent months. Next month I will begin a new series of ideas that are “sustainable” for the balance of 2009.	In This Issue Up Front News, Trends & Analysis New Items The outlook is improving Supply Chain Federal chassis rules: Are you ready? Working with the public sector How will your company deal with Sarbanes-Oxley Features Gateway at a glance �Southern California Six case studies in green Ports & infrastructure Nowhere near a Peak Season this year Port Products Green port product review Commentary Sustainable: The new buzz word On the Horizon Expect to see more LNG fuel stations in the future Casualties
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Sustainable: The new buzz word