No structure in place to protect tariff rates
The shipping lines are reacting to this by introducing slower steaming speeds which will provide substantial fuel saving costs and this will also have the effect of mitigating the current over capacity situation to a certain degree.
The question this time around is how long and how deep this next downturn will be. Some analysts believe that it will be 2010 before there are any signs of recovery with other opinions varying on the levels of optimism and pessimism, whereas in past downturns there has normally been an upturn in growth the following year.
As usual in times of difficulties within the industry there is talk of consolidation and merger and acquisition. However, the only publically acknowledged sale of a major container shipping line at this time is Hapag Lloyd. With CMA-CGM and MSC committed to their independence and Maersk still recovering from their acquisition of P&O Nedlloyd it is unlikely there will be any movement within the top 3 shipping lines. Again, one of the particular events occurring at this time is the tightening of credit lines so you could assume there would be very little happening with regards to consolidation at this time outside of vessel sharing arrangements.
US Trades
As the current sets of events unfold it is having a considerable impact on the US trades with consumer confidence falling, and in turn consumer spending falling, it is having a significant impact on import volumes. Conversely, with the relatively low value of the US$, US manufactured goods have become more competitive which has increased export volumes considerably.
The increase in exports does not fully counteract the fall in import volumes but it is helping to mitigate the fall in overall volumes and we can see that the PONYNJ is benefiting from this and maintaining growth in the first part of 2008. This contrasts with the fortunes of USWC ports where the Port of Long Beach saw a fall of 12.7% in May 2008 and the Port of Los Angeles recorded a growth of 0.8% in the same month.
There are other issues related to the use of USWC ports as a gateway to the US such as labour issues affecting the confidence of shipping lines, environmental issues delaying expansion, rail capacity and costs. Although these are issues that can be resolved, so long as they continue it will make the USEC ports more attractive for all water services from Asia and protect ports such as New York and New Jersey from negative growth rates. When this is considered in conjunction with higher fuel costs the USEC will continue to remain attractive to the container shipping lines.
For the PONYNJ, its location within a major conurbation and therefore a major consumer region and cargo generating area gives it a distinct geographical advantage for the major US hinterland market. Furthermore, with the investment in rail connections it is also a gateway for other major markets such as the Midwest. The market for PANYNJ can therefore be described in two distinct parts as immediate hinterland, or local market, and gateway traffic market.
It can be assumed that the Port will always be the port of choice for the immediate hinterland but it will face more competition for gateway traffic from other regional ports such as Halifax and the Virginia ports.
Although it is difficult to estimate how long and how deep this current downturn will be, if we assume that the market will rebound as it has in the past we can factor in a continued growth based on historic trade figures. Based on a high case scenario these assumptions are:
Oil price stable at a relatively high level
Political stability in major trading partners regions
Continued growth of the US economy, accompanied by free trade policies
Economic and currency stability in eastern Asia
Continued deregulation, restructuring and revitalisation of the Japanese economy, resulting in a closer balance in its trade flows
Political stability, economic expansion and continuing structural reform in China
Strengthening economic recovery and free trade policies in the EU
More flexible economic management within in the euro zone
Stable trade framework and continued foreign direct investment in emerging and developing economies
(September 15,2008)
