APL executive calls for carrier discipline to beat downturn

A senior executive of APL has called on individual container lines to take decisive action to reverse the current market downturn.

Dan Ryan, APL's Greater China president, speaking at the second Containerization and Liner Shipping China conference in Tianjin, said that a negative scenario of financial market turmoil, low consumer confidence as well as rising inflation and commodity prices, compounded by historically high fuel prices, requires lines urgent attention.

Suggested solutions included carriers moderating growth aspirations, returning excess tonnage to the charter market, rationalizing and even suspending some services, and having stronger resolve to pass along bunker costs to customers.

If we fail to take action, the industry could see a more significant downturn than we have seen in many years, he said.

Whether such a remedy plan is adopted on a widespread basis remains to be seen. Container lines will in less than a month's time lose the freedom to collectively plan for the future -- at least for European trades -- with the repeal of the liner conference exemption in EC Regulation 4056/86. Prominent shipper groups are also calling for the same reform in Asia and the United States.

Ryan said the economic slowdowns in major consumer regions such as the United States and Europe has slowed China's industrial output growth so that the previously booming Asia/Europe trade is now precipitous with deteriorating demand growth, utilization levels and core rate levels catching the industry by surprise. The trade lane will also struggle to absorb the high numbers of 7,500-TEU-plus newbuilds arriving with Ryan citing analysis from shipbroker Howe Robinson showing that in 2009 the Asia/Europe trade is facing a potential capacity overhang of some 450,000 TEUs.

The current situation in Asia/Europe is far worse than during the last cyclical downturn,?Ryan said.

The Asia/North America transpacific trade, which Ryan said has been economically challenging for some time, has a relatively balanced near-term supply/demand outlook with capacity forecast to contract in 2008 and very likely in 2009 as well. 

One shining beacon for the industry is the continued growth in the intra-Asia trades, according to Ryan. Trade between China and other Asian countries continues to grow robustly. This illustrates the growing wealth in many Asia nations as well the impact of the dynamic Middle East markets. Ryan said the negative macroeconomic picture is not brightened by materially different?cost environment where fuel prices, despite recent reductions, remain at remarkably high levels. The APL manager said that in four years bunker costs have risen from 40 percent to more than 70 percent of total ship operating costs in the transpacific trade.

reat headway has been made in fuel recovery -- particularly in the transpacific -- but continued recovery efforts are essential. Fuel will continue to impact the way we serve our customers and the financial returns we achieve, Ryan said.