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  October 6th, 2017 | Written by

Shippers Need Higher Ocean Rates

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  • Shippers are willing to pay for the service they actually receive.
  • Carriers are shooting themselves in the foot and are operating at huge losses.
  • Carriers' financial losses motivated carriers to consolidate and to form new alliances.

Ocean container shipping rates have been scraping rock bottom for several years, but the financial losses being racked up by the shipping lines don’t benefit shippers.

That was a central message delivered by Alison Leavitt, managing director of the Wine and Spirits Shippers Association at the port of New York and New Jersey’s 17th annual Port Industry Day in Jersey City, New Jersey, earlier this week.

No one wants to pay more than next the guy,” she said, “but shippers are willing to pay for service that actually works.”

The WSSA was founded in 1976 and represents 600 members, 70 percent of them based in the United States.

“Carriers are in a unique situation where they keep on shooting themselves in the foot and operate at terrible losses,” said Leavitt, culminating with the Hanjin bankruptcy.

Those losses, which go back to around 2008, motivated carriers to consolidate and to form new alliances, seeking economies of scale, global operations, and a solution to the capacity glut. All that has left shippers with fewer options and leading Leavitt to question whether carriers can differentiate themselves in the current environment.

She pointed to the proposed merger of Maersk and Hamburg Sud, a deal that may close by the end of this year, as a case in point. “Hamburd Sud is known for its service,” Leavitt said. “It’s a huge regional resource for us in South America and Oceania. Many people have been there for 25 or 30 years and really know what they’re doing.

“What happens when Big Blue takes over?” she mused. “It’s disconcerting from a shipper’s perspective.”

The smaller, more nimble carriers of the past were able to provide better service according to Leavitt. “They could hold up a ship of cargo was late or skip a port call,” she said. “Alliances have changed how carriers operate.”

The same still holds true. “We get the best service from smaller carriers,” said Leavitt. “Some top-tier carriers are unable to perform pickups and deliveries on a timely basis.”

The WSSA generally negotiates through rates with carriers to include deliveries to the ultimate destination. There have been cases where import shipments were railed from New York to Chicago, but the carriers claims it doesn’t have the equipment to deliver. To make matters worse, they say the container is going into demurrage, which adds costs to the shipper.

That leads to a “huge fight” with the carrier, said Leavitt. “But other carriers never contact us about delays. They just get it done.”

Ports are another potential choke point for cargo and in the case of New York and New Jersey, longer gate hours are required to increase throughput. The WSSA primarily uses the ports of NYNJ and Oakland and the latter port has alleviated congestion with 24-hour gates made possible by a thirty-dollar gate fee.

Thirty dollars is a low price to pay for 24-hour gates,” said Leavitt. “It eliminated congestion in just a few months.”

Which goes to prove once again that shippers are willing to pay for the service they actually receive.