Supply Chain / Logistics / Transportation

Shippers warned to brace for LTL rate hikes – DC Velocity

Several of the nation's top less-than-truckload (LTL) carriers, fresh from announcing rate increases of nearly 7 percent on their non-contract traffic, are prepared to impose another round of rate hikes in February 2012, according to a top executive at a firm that advises shippers on spend management issues.

John Haber, executive vice president of transportation for Atlanta-based NPI, said he's been told by reliable sources at several LTL carriers to expect another round of general rate increases in February. That would be about six months after the most recent cycle of increases, most of which went into effect at the beginning of August. The one exception is FedEx Freight, the LTL unit of FedEx Corp. and the nation's largest LTL carrier, which today announced a 6.75-percent rate increase, effective Sept. 6.

Haber, whose firm represents about 300 shippers of varying sizes, said he's been told that the 2012 increases would likely fall in the 5- to 6-percent range, less than the 6.9-percent rate increases announced by UPS Freight, ABF Freight System Inc., YRC Worldwide Inc., and Con-way Freight or the 6.75-percent increase from FedEx Freight.

YRC CEO James L. Welch, in an Aug. 5 interview, declined comment on any future rate increases. Representatives for UPS Freight and ABF denied that such a rate increase was in the offing. A spokesman for Con-way declined comment.

From late 2006 through 2009, LTL carriers were buffeted by a freight recession exacerbated by a broad economic downturn that followed the financial crisis that began in September 2008. During that time, the industry was also embroiled in a persistent rate war that compressed carriers' profit margins. Many speculate that the rate-cutting strategy was a concerted effort to drive financially ailing YRC, then the market leader, out of business.

YRC has survived, however, and since the start of 2010, the carriers have reversed course, raising rates and culling marginally priced freight in an effort to boost revenue per pound—or yields—and improve profitability. Since January 2010, for example, UPS Freight, the LTL unit of UPS Inc., has imposed three general rate increases. UPS Freight was the first carrier to announce a rate hike this time around.

Haber said LTL shippers can look for alternative solutions, but with the major carriers falling in lockstep—or poised to—they may have little room to maneuver. He said experienced shippers with significant volumes might be able to bargain the carriers down to a 3- to 5-percent increase, but likely no lower.

Haber said he understands the carriers' need to generate adequate returns to offset higher labor and operating costs, satisfy shareholders, and reinvest in the business. However, he added that the amount and the frequency of the increases have been "excessive."

Haber said FedEx Freight has been the most active in walking away from low-margin business after two years of aggressive rate-cutting designed to capture market share. The unit last month reported that it turned an operating profit in its fiscal fourth quarter, its first quarter in the black after six consecutive quarters of operating losses. In the quarter, FedEx Freight's yields rose 13 percent year over year, while tonnage fell by 8 percent during that span.

In April, Alan B. Graf Jr., FedEx's CFO, told an investor conference the company "shot ourselves in the foot" with its LTL discounting strategy. "We got too aggressive on yields and tried to make it up in productivity. The reality was that we could not," he said.

In a statement accompanying ABF's generally solid second-quarter results, Judy R. McReynolds, president and CEO of parent Arkansas Best Corp., cautioned that the "progress made so far does not produce sufficient returns for our shareholders nor does it allow us to adequately recapitalize our business." The path to profita

via www.dcvelocity.com

Capacity crunch looms over feeder operations - IFW - ifw-net.com

UK and other European shortsea container feeder operations could soon be hit by a “capacity crunch” as fleet development fails to keep pace with changes on the deepsea shipping scene.

A senior executive at Hamburg-based Team Lines, which has a fleet of about 18 vessels connecting around 30 European ports from the Baltic to the Mediterranean, said he was concerned that deepsea vessels were getting larger while there was limited development in the size and number of feeder ships.

This would put extra pressure on the vessels that were already in operation, Christian Mordhorst, Team Lines’ Chief Commercial Officer, explained.

He added that Team Lines was already discussing the issue with its clients.

He said: “We probably all need to take a bit of a longer-term view on things, because with all the big new deepsea vessels being delivered over the next couple of years, everyone will be looking to increase their market share.

“But there won’t be additional feeder vessels available for either the deepsea lines or us to greatly expand capacity."

Mordhorst added that in the past, shortsea capacity had been boosted by vessels being “cascaded down” from deepsea trades into feeder operations as they were replaced by newer, larger vessels.

But the ships of 3,000-4,000teu capacity now employed on deepsea routes were too large to be redeployed in the European shortsea feeder sector because the ports they service cannot handle them.

Also, a debate continues across the shortsea shipping industry regarding the merits of deploying larger vessels in order to obtain economies of scale versus operating smaller ships and higher-frequency sailings.

Harry Kleipas, MD of Feederlink, which operates four vessels of 400-550teu capacity, said the size of feeder vessels was, in principle, dictated by what the ports can handle.

He said: “The second thing – and this comes down to the choice of individual operators – is that the larger your feeder vessels, the shorter your sailing frequency, because the ships spend more time in port. We have opted for frequency.”

However, Søren Heegaard, UK country manager for Unifeeder, which operates more than 40 vessels of 700-1,500teu and is just taking on its largest ever vessel, of 1,800teu, argued that with a big enough fleet and network it was possible to operate both larger ships and high-frequency sailings.

via www.ifw-net.com

Container shipping will stay volatile for four more years - IFW - ifw-net.com

The high volatility experienced in the container shipping market over the past few years will continue for another four years, according to one analyst.

Analyst SeaIntel said changing market conditions and economic developments had caused the balance between the supply of ships and demand for space on those vessels to become increasingly unstable since 2009.

And until these factors subside, which SeaIntel does not expect to happen for three or four years, the highly volatile conditions experienced in 2009, 2010 and 2011 are predicted to continue.

The analyst blamed several changes in the market for the volatility. Firstly, carriers were still coming to terms with changing trade distances.

In the past 30 years, global demand for container shipping had grown by 8-9% a year, but vessel supply had grown by around 11%, SeaIntel said.

However, this had not resulted in oversupply of capacity, because the excess vessels were absorbed by lengthening sea journeys as production moved further away from final destination.

But production is now largely as far from final destination as it can get in the US and Europe.

A second factor for the volatility is the slowdown of growth on the head-haul direction of trade routes.

SeaIntel said shipping lines could previously rely on faster growth on the head-haul direction to mop up extra capacity. However, with production in the US and Europe now largely outsourced to Asia, growth on the head-haul route had slowed and could no longer be relied on to relieve overcapacity.

Other trends identified by SeaIntel that were increasing volatility were: sudden cascading of vessels onto smaller trade lanes, resulting in battles for market share; carriers increasingly turning to vessel lay-ups to restore freight rates; sudden inventory corrections; and the possibility of slow-steaming coming to an end.

SeaIntel concluded: “If capacity is ordered based on the same ordering patterns as in the past 30 years, it is highly likely that too much capacity will be ordered, laying the foundation for a sharp downturn in the market.

“We are also facing a market wherein outsourcing of production from particularly US and North Europe is reaching saturation levels.

“On top of that, the containerisation process of moving from bulk to container is also reaching saturation levels. This implies that the long-term average container growth of 8-9% annually will likely have to be reduced.

“The nature of the inventory correction has the opposite effect. This will result in a sudden capacity shortage, pushing prices upwards sharply.

“If this happens while vessels are in lay-up, we see a high likelihood of a replay of the 2010 scenario, with a rapidly increasing market followed by a significant decline.”

via www.ifw-net.com