TRANSPORT

 


Rapid growth and expansion are pushing container companies to search for global solutions

By K Barry Olsen

 

Container companies chart a global course


World trade has mushroomed over the last 30 years and containerization has played a significant part in making this possible. Trade barriers are disappearing and free trade agreements are taking place between countries. The doors to new markets have also become much easier to open. According to the latest predictions, world trade is forecast to increase by at least 5%/yr between now and 2010. There are even those who believe that this forecast is on the conservative side.

Containerization has been around for 40 years, but it is in the last 25 years that the industry has been revolutionized. Global container handling is forecast to rise from 70 million teu (twenty feet equivalent unit)/yr in 1990 to almost 160 million teu/yr by 2000. There are few industries that have witnessed such a dramatic increase in capacity or been able to cope with such rapid growth rates. A similar increase has also been seen in the world's container fleet. In 1980, the world's cellular fleet was less than 700,000 teus, but today the figure hovers in the area of three million. By next year, containerized cargo will account for 55% of all the cargo moved by sea, while just 10 years ago its market share was lower than 40%.

In order to keep pace with this growing trade, ship owners are forced to build ever larger vessels. At present, the fastest growing segments are 3,500 teu and post-panamax designs which currently account for 50% of new ships. Companies that focus on international shipping must ensure that they are armed with the right tools, namely the right size of ships, to cope in the waters. For example, Maersk is phasing in 19 vessels of 6,000 plus teu, 14 of which are already in service. The balance will be in service during the rest of this year and 2000. Supply versus demand is always a cause for concern, but the company believes that capacity will be in line with global requirements for the foreseeable future.

Container ships head out for international seas

 

Sizing up the future

Going forward, opinions are mixed on the future size of ships. Many industry observers predict 8,000 teu vessels, while others are more ambitious with forecasts of 12,000 teu vessels. Judging by the experiences of the last decade, no size possibilities should be ruled out. But, before getting too carried away with size, companies must be sure that the necessary land and water infrastructures are in place. In the future, ocean transportation will continue to be the cheapest form of transport in the world and container transport will carry on being a cost effective method for moving goods. Reduced packaging costs, cargo loss, manual rehandling, quicker and more efficient distribution, are just a few of the advantages that container companies can offer their customers.

Going back 30 years, there was considerable skepticism over the future of this new form of transport. Many people doubted that containers would ever be used to transport major moving commodities, particularly in the realm of pulp and paper. People were convinced that newsprint, linerboard and pulp would never be moved in containers as the volumes and transportation costs would be prohibitive. They believed that containers would be suitable for very high priced merchandise, but nothing else. But these so-called experts have been proved very wrong and pulp and paper products are moving in vast quantities in containers today. Containerization has enabled companies to ship products to markets which did not exist 30 years ago and companies are also able to move smaller quantities rather than chartering on break bulk vessels. Added to that, the container industry has developed cost saving initiatives that allow companies to ship pulp and paper to virtually all corners of the globe. As larger vessels are built with expanding capacities, this will mean that more and more of the sector's output will move via this method.

 

Global containment

As container capacity grows in size, the companies in control are also gaining weight. A few years ago it was forecast that by the end of this century a handful of owners and/or alliances would control 80% of the world's container trade. As the end of the century draws near, this prediction is certainly coming true. The industry is in the midst of a major shakeup where rationalization and consolidation are the flavors of the day. To name but one example, this year Maersk acquired South Africa Marine Line and is currently in the process of acquiring the international services of Sealand, the largest US container carrier. There will be further partnerships formed in the industry as there are very few companies that can single-handedly carry the massive capital investments needed to compete in the global container market, let alone show a reasonable return on investment. The domination of a few major companies is the result of a multitude of successes and failures, which through bankruptcies, mergers and acquisitions have consolidated hundreds of local or regional companies into international transport companies.

The container world may be shrinking in numbers, but this does not mean that there has been a reduction in competition in the industry. Nor does it mean that the shippers will be left with fewer options in the future. Even though companies are forming alliances with other lines, this does not rule out competition with each other within the alliances. Competition will always increase or decrease depending on the strengths or weaknesses of the market place.

The alliances have allowed the shipping lines not only to reduce operating costs, but also to become part of a global group and offer competitive services worldwide. Many customers today are looking for one stop shopping for their global transportation needs. At present, only a handful of global players can provide these services. Many shippers are looking for added-value services including JIT (just in time) delivery, logistics, supply chain management, door-to-door, intermodal services, computer tracking, etc.

In the new era of globalization, the speed of business and the pace of innovation is rapidly changing the world of transport. Leaders in any segment must continue to reinvent their companies to keep pace with the market changes, otherwise they risk elimination by competitors with a more effective business model. The majority of leading global companies by market valuation did not exist at the turn of this century, they did not exist 50 years ago and many did not even exist 25 years ago. This leaves a large questionmark over who will be the leaders in 2025.

Ship sizes keep on growing

 

Shareholder value

Any industry which is not growing and creating value for their stakeholders is in decline. The shipping industry has not achieved the level of innovation, consolidation, cost-effective delivery and creativity required to obtain a reasonable return on capital or generate value for its shareholders. Going forward, the industry cannot sustain continued losses and needs to maximize on economies of scale, information technology and customer partnerships to reinvigorate the industry. Companies need to achieve compensatory rates and provide reliable transportation and economics to their customers.

As one of the largest global ocean carriers in the world, Maersk has a unique perspective to observe worldwide trends affecting multinational clients in many industries. This is an exciting time for container companies who depend on foreign business to grow faster than their domestic markets. Two key factors contributing to this globalization are the creation and expansion of infrastructure and the evolution of a new business model. An understanding and appreciation of these concepts can prove the difference between success and failure for any company competing for business across the street, across a time zone, or across an ocean.

While naval architecture is evolving to comply with the demands of a new environment, infrastructure must also be ready to meet the future. The economies of scale and advances in technology which made vessels such as the K class possible, and in fact, necessary, must be now reflected in a new generation of port and harbor facilities and functions. These need to include:

• gantry cranes with a span width of 17 containers
• harbor channels that can accommodate ships with 50' drafts
• terminals capable of handling container volumes more efficiently
• rails and intermodal infrastructures must expand to handle growing world trade volumes.

 

On the move with IT

Away from the harbor, the impact of technological developments on all aspects of business has been nothing short of revolutionary. Business has become a 24 hour a day, seven day a week enterprise, where a small company in the northwest of the USA named after a big South American river can now call itself the largest bookseller in the world. In the shipping industry, web sites can be used for customer service inquiries, bookings, issuance of bills of lading and container tracking in a medium which is always open and constantly updated. There is unlimited potential in this endless access to information. Time zones and geographic borders are rendered irrelevant by this technology, with information available to anyone with a modem. The world is getting smaller and faster.

But all of these wonderful tools are useless without humans who know how to use them. Without properly trained people, global reach is futile. Staff must also understand and practice what is needed to meet and exceed customers' expectations. They need to determine customers' needs and sometimes help customers to figure out what they actually need.

The marketplace will drive the future and companies cannot afford to live in cocoons, isolating themselves from the market. Acceleration is going to be much greater in the future and the container sector has to be ready for it. Continuous improvement of current services is crucial. But more importantly, companies need to use foresight in their quest for competitiveness. One thing is for sure, the future will mean change - but change that is more drastic and rapid than one can possibly imagine. As George Bernard Shaw put it, "Progress is impossible without change and those who can't change their minds can't change anything."

K Barry Olsen is the president of Maersk Canada. This is an extract from his speech at PPI’s 13th Transport Symposium in Quebec, Canada.



Pulp&Paper International October 1999

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