A former top liner executive turned consultant said Thursday that volumes on the key eastbound trade from Asia to the United States will not be nearly as strong as many believe, and that carriers in the trade will have difficulty negotiating compensatory rates with their customers.
Robert Sappio, managing director of Alvarez & Marsal Business Consulting and formerly one of the top executives at liner giant APL Ltd., told a maritime conference in Norfolk, Va., that estimates of 7 percent tonnage growth in the trans-Pacific eastbound trade are too optimistic given industry conditions. This comes after no growth in 2011 in the important all-water trade, he said.
Due to lackluster tonnage growth, the trade lane will remain a buyer's market for contractual business, Sappio said. About 30 percent of the freight moves on the spot market, which is strong at the moment, according to Sappio. However, the remaining 70 percent of eastbound trans-Pacific cargo moves under contract, and channel checks during contract negotiations earlier this year indicated the carriers did not come close to getting the rates they wanted, Sappio said.
Sappio also said that, at $750 per metric ton, the rising cost of ship bunker fuel means that fuel now accounts for 55 percent of the cost of a voyage from Asia to the United States. As a result, carriers have resorted to a practice known as slow steaming, where they slow down the speeds of their ships. The practice conserves fuel and enables liners to add vessels to their schedules, or "string," thus getting more utilization out of their fleet.
With oil prices remaining high and even more large ships hitting the water in 2013 than this year, slow steaming has become an ever more critical element in vessel operations. "Slow steaming is here to stay," he told the audience. He added that the ocean supply chain would experience an "overhang of capacity for the foreseeable future."
Others at the conference were waxing optimistic about the nation's export prospects and the role the maritime industry is playing—and will continue to play—in export growth. Sappio acknowledged those developments but added that "industry economics" are driven by the eastbound trade, and not by exports.
While at APL, Sappio headed all commercial activities for the carrier's trans-Atlantic, trans-Pacific, and Latin American regions.