Transcript Microsoft PowerPoint - 150326 HPCLC 2015 Ports America

Behind the Scenes: How Airlines &
Ocean Carriers Manage Capacity
The Health and Personal Care Logistics Conference, 2015
Philadelphia
26th March 2015
Introduction
The ‘behind‐the‐scenes’ topics we will try to address today:
› How do airlines and ocean carriers manage capacity short‐term vs. long‐term?
› How quickly can these service providers really adjust to arising market changes?
› What are the challenges of capacity and trade lane management in today’s global
marketplace?
We will try to keep it light and please help us make it interactive!
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Ports America – Leading the Way
Broad Geographic Scope and Diversified Service Offering:
› Ports America provides terminal management and a full range of stevedoring,
labor services, and labor management
› Active in more than 80 locations at 42 ports; largest US terminal operator
› Experience handling mixed cargoes; in a typical year, Ports America handles
more than 12 million TEUs, 4 million vehicles, 9 million tons of general cargo
and 1.5 million passengers
Long‐Term Customer Approach and Vested Collaboration:
› Leader in infrastructure funding and Public‐Private‐Partnerships (PPPs) with
multiple long‐term concessions and joint ventures
› Highly experienced and respected in Labor Management
› Long‐standing customer relationships with the world’s leading shipping lines,
beneficial cargo owners, freight forwarders, NVOCCs, and 3PLs
Experienced and Result‐driven Solutions Provider:
› Ports America garners top safety awards for accident prevention
› Operational excellence as measured by robust KPIs, Six Sigma, safety record
Strategic, Innovative, Long‐Term Supply Chain Partner:
› Key partner in stakeholder management with various partners such as
government agencies, railroads, 3PLs
› Actively identifying development projects and innovations to support our
customers and their customers
How can we work together?
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Container shipping is a cyclical, capital intensive and highly commoditized – Carriers have
formed alliances and deployed larger vessels to counter risks
Summary of Key Container Shipping Industry Characteristics
Growth market but cyclical
CHARACTERISTICS
Capital intensive, high fixed costs
Commoditized
Fragmented, focus on the challenges
Scale effect driven
Environmental impact becoming more and more important
New Panama Canal impact will be significant
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The highly fragmented container liner industry is polarizing in to global alliance
structures – Impact on network flexibility is significant
Overview of Global Container Carrier Alliances and Global Capacity Share1)
CKYH+E
2M
03 + HSDG
G6 + ZIM
Independents
Evergreen
5.0%
Maersk
15.6%
CMA CGM
8.8%
HL / CSAV
5.1%
PIL
COSCO
4.3%
MSC
13.5%
CSCL
3.6%
MOL
3.2%
Horizon
Hanjin
3.2%
UASC
2.0%
APL
3.0%
Pasha
Yang Ming
2.2%
HSDG
2.8%
OOCL
2.8%
TOTE
K Line
2.0%
NYK
2.7%
ACL
HHI
2.0%
Etc.
ZIM
1.8%
G6+ZIM
20.6%
CKYHE
16.7%
2M
29.1%
O3+HS
17.2%
The four global ocean carrier alliances control ~85% of global capacity generally
making networks slow to adapt to changing conditions due to inflexibility
1) Alphaliner Top 100, January 2015
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Container liner shipping services are network oriented and cannot be changed
‘overnight’ – Only limited “quick fixes” are possible
Container Shipping Capacity and Trade Lane Management
Container Liner Trade Structure
› Ocean shipping includes liner
services (regular fixed‐day with
weekly frequency) and tramp
services (irregular point‐to‐point)
› Liner services are comprised of a
string of vessels operated in a loop
or a pendulum typically via a hub‐
and‐spoke network
› Individual carriers and alliance
partners operate services jointly by
contributing vessels and/or by
buying/selling slots and including
respective hubs
Capacity Adjustments
› In container shipping, “short‐term” is
measured in weeks/months (air
freight measures in hours/days)
› “Extra loaders” and “blank sailings”
are used short‐term to increase and
decrease capacity, respectively
› In container shipping, “long term” is
measured in years and adjustments
require significant planning and
investment, larger vessels and
cascading, and navigating the
complexity of jointly operating with
multiple alliance partners
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Health and personal care companies can potentially improve their transit times by
selecting carriers who are invested in selected terminals
Overview of Value Chain Coverage by Key Industry Players
Limited
differentiation
Ware‐
house
Inland
transport
Terminal
Ocean Leg
Inland
transport
Terminal
High
standardization
Similar cost
Low switching
costs
Low margins
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Ware‐
house
Questions?
Please contact Ports America for further details!
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Appendix
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Container shipping is a cyclical, capital intensive and highly commoditized – Carriers have
formed alliances and deployed larger vessels to counter risks
Summary of Key Container Shipping Industry Characteristics
BACKUP
1 Growth market
but cyclical
› The container industry remains a growth market due to its close linkage with world trade
› Supply/demand imbalances cause freight rates to be cyclical; rates generally declining putting downward
pressure on the profitability of liner companies
2 Capital intensive,
high fixed costs
› Enormous investments required to grow with the market and maintain market share
› Substantial fixed cost burden
› Increased imbalance cost for carriers due to nature of world trade (Asia dominance)
3 Commoditized
› Largely standardized service offering with limited potential for product differentiation
› More or less comparable factor costs for all competitors
› Low switching costs for customers
4 Fragmented,
focus on
alliances
› Industry dominated by large global players followed by many small, regional and niche players
› Most global top 20 carriers forced to forge alliances due to above constraints; benefits include more
efficient capacity management, reduced costs and expanded coverage
5 Scale effect
driven
› Expectation that fuel costs will increase in the long term
› Deploying largest vessel per trade highly important due to resulting slot cost advantage
› Young, efficient, and technologically advanced fleet as key competitive factor (cost‐wise)
6 Environmental
impact
› Increased focus on reducing the adverse environmental impact of container shipping
› Possible first mover advantages commercially plus significant cost saving by switching to advanced
technologies (e.g. LNG dual fuel) albeit capital investment usually high
7 New Panama
Canal Impact
› Opening of the Asia – USEC trade lane with larger vessels
› Current fleet of “Panamax” vessels likely to become redundant on most mainline trades, possible utilization
on feeder trades or trades with draft restrictions
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Container liner shipping services are network oriented and cannot be changed
‘overnight’ – Quick fixes sometimes still possible
Container Shipping Capacity and Trade Lane Management
Container Liner Trade Structure
› Ocean shipping includes liner services and
tramp services
– Liner Service is a regular fixed‐day
weekly frequency between two
geographic regions (like a bus route)
– Tramp Service is point‐to‐point based
on demand (like a taxi)
› A container liner trade service
– Is comprised of a string of vessels
that are operated in a loop or
pendulum
– Is usually connected through a hub‐
and‐spoke network
› Individual carriers and alliance partners
– Operate services jointly by
contributing vessels and/or by
buying/selling slots
– Usually require that their hubs are
included in the service pattern
Capacity Adjustments
› Short‐term network/capacity increases
are easy to implement if vessels are
available from carrier fleets and/or in the
charter market
– Traditional peak season “extra
loaders” can be deployed to
complement regular liner services
› Short‐term network/capacity decreases
are normally achieved through “blank
sailings”
– This approach effectively skips a
regular weekly sailing
– Also used as a means to catch up
vessels that are behind schedule
› Long‐term network/capacity changes are
more complex and depend on
– Significant planning and investment
– Larger vessels and cascading options
– Agreement with all stakeholders,
especially alliance partners
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BACKUP
Summary & Conclusions
BACKUP
› Container shipping likely to remain the fastest growing segment of sea trade – Cyclicality
to remain with more ordering and bigger ships
› Global trade imbalances are a structural problem – Empty repositioning challenge
persists
› Liner services will continue to be commoditized – “Service platform” of 3PLs more
customer‐centric and will outperform carriers’ “asset optimization” platform, but
carriers will continue to diversify
› New operating models have emerged in the last 5‐7 years due to outside drivers
(information technology, e‐commerce, daily service, offshoring, etc.) and influences from
other industries (transaction portals, loyalty schemes, dynamic pricing, etc.); The next
few years will see further tweaks to operating models as lines attempt to differentiate
their products
› Largest carriers will consolidate presence further (e.g. 2M) – Fragmentation in niche
markets will remain
› Bunker prices to remain high in the long term – Measures adopted in 2009 (e.g. slow
steaming and idling) will continue going forward
› Pressure will increase on terminal operators and 3PLs to: invest in terminal and landside
infrastructure, improve efficiency and productivity
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