outlook for 2016

Align your freight portfolio to meet your business requirements

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By Sara Mayes, President and CEO, Gemini Shippers Group

As the head of a shippers’ association, I often get questions from supply chain leaders on how they should allocate their freight for the upcoming 2016 contracting season.  Like years past, shippers face a multitude of questions to consider when determining carrier allocations.

Carriers and Alliances:  How do I allocate cargo among the various carriers and alliances products?

Routing Options: How should we allocate between the US East and West Coast?  For cargo destined to the US East Coast, should we focus on strings that move via the Panama Canal or the Suez Canal?  Which ports should we use as gateway ports for inland intermodal cargo?  Should we book our shipment for door delivery or arrange last mile logistics ourselves?  Which underlying class I railroad is optimal for our inland cargo?  What do I do about Chassis?

Rate Structure:  Should we lock in long term rates or focus on short term spot pricing?

Service Requirements:  How important is transit time?  How important is customer service and documentation? What other value added services do I require?

Carriers vs. NVOCC or Shippers Association:  Should we procure direct contracts with Ocean carriers, or route freight via a freight intermediary, or a shippers’ association?

Price: What is a fair and reasonable price for the service levels I require?

In a normal year, supply chain managers face an enormous task of analyzing the almost endless permutations of origins – destinations – carriers – alliances – gateways – railroads – drayage companies and price options available to them.

This year shippers have a more sizable challenge driven by the high level of uncertainty facing ocean shipping.

Product uncertainty:  Pending M&A activity and the opening of the enlarged Panama Canal will most likely lead to significant product changes for many carriers and vessel alliances in 2016.

Price Uncertainty:  Significant overcapacity, and tepid global demand have introduced an extreme amount of rate volatility into the market in 2015.  Low ocean freight rates buoyed by recent low bunker prices have driven rates to recent historical lows, putting carriers’ ability to remain profitable at risk.

With all of these factors in play, my answer to shippers on how to allocate their cargo is simple: allocate cargo like you should allocate your investment portfolio – carefully, thoughtfully, diversified, and aligned with your tolerance for risk.

Here at Gemini Shippers, we help to educate our member companies on the changing permutations of choice and help them to align their carrier selections to create a value proposition that corresponds to service level and price goals required to successfully manage their supply chain.   With our diverse carrier options and no required commitment from members, we offer tremendous flexibility.

Understanding the freight ecosystem and your company’s business requirements before you allocate cargo in 2016 is key to a successful contracting program.

To find out how Gemini can make a difference for your company, visit us at www.geminishippers.com or call us at 212-947-3424.


What will 2016 Bring for Containerized Shipping?

By | Gemini News, Industry News | No Comments

By Sara Mayes, CEO and President Gemini Shippers Group, January 5, 2016

2016 promises to be another interesting year for shipping on the Transpacific Trade. Many shippers enter the year wondering where freight rates and capacity will head. 2015 proved a volatile year with carriers and shippers experiencing wild swings in price and service due to the continued delivery of new ULCC container ships, port congestion on the West Coast in the first half of the year and declining short term rates driven by overcapacity on most of the East-West trades. Despite modest growth in the Pacific, lines had little relief beyond the continued decline in bunker prices and the hope of possible future benefits due to industry consolidation brought about by the merger of Cosco and China Shipping and the purchase of APL by CMA.

So, as we enter the 2016 contracting season, many shippers are wondering what to expect.

While it’s probably a bit early to know for sure, a couple of trends seem to be emerging.

New ship deliveries will continue in 2016. Carriers continue to order and receive new and larger ships at a faster pace than demand growth. The current global order book of 3.8 million teu represents 20% of the existing container fleet. 60% of these new builds (around 300 ships) are scheduled to be delivered in 2016 and 2017.

Fuel prices remain at recent lows. Bunker prices start 2016 at a ten-year low of around $140 per ton which is 49% less that the 2014 average price. This lower price benefits carriers with lower operational costs, the savings of which are often passed on to shippers in lower rates. Lower bunker prices also affect carriers’ decisions to lay up tonnage, with lower bunker prices lowering the threshold at which carriers reach a voyage cash burn position (and hence often cancel sailings).

Short term rates will continue to be volatile. Carriers will keep using spot rate pricing as a tool to fill ships, but shippers will continue to face wild swings in price and capacity availability when relying on the spot market.

Carriers will attempt to improve long term contract rates in May 2016. In November, the Transpacific Stabilization Agreement, which represents 90% of the capacity in the Pacific trade, noted that they would seek minimum rate guidelines for the May 1 contracting season. Like past years, it is safe to assume that these guidelines will come under pressure as the early bird bid season commences after Lunar New Year.

Intermodal rates and drayage continue to be problematic for both shippers and carriers.   Carriers continue to struggle to provide adequate pricing and service levels for inland locations and door delivery service their preference for port to port cargo and the uncertainty of container imbalances costs driven by a poor westbound market.

Alliance changes are not imminent but are on the horizon. The merger of Cosco and China Shipping and the eventual takeover of APL by CMA will lead to an alliance reshuffle in the future. While Cosco and China Shipping have not yet indicated where they will go, CMA has said that their future with APL lies in the O3 group, hence future change for the G6, O3 and CKYHE alliances is likely.

With modest demand growth expected in 2016, it looks like rates will remain under pressure as we enter into the 2016 contracting season; but, as we have learned from the past, in liner shipping, the only constant is change.