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‘Mega vessels' add to capacity

Staff Staff, Larry Thomas -- Home Accents Today, July 12, 2012

Jim AlemanyJim Alemany
Atlanta - Next year's scheduled launch of several extra-large cargo vessels should lessen the volatility of shipping rates for containers sent from the Pacific Rim, a panel of ocean freight experts agreed here.
     Speaking at Sandow Media's second annual Logistics Conference, several panelists said the so-called "mega vessels" - some of which will have 25% more container capacity than a typical cargo ship - will add considerable capacity to a transportation system that may not need it right away.
     "With the sort of investment the steamship companies are making in these mega vessels, it's going to be harder to pull capacity out in order to drive rates up," said Steve Wolfe, vice president of global supply chain and logistics at Stanley Furniture.
     Wolfe and other panelists said they would welcome more stability in shipping rates, which have whipsawed for more than two years as steamship companies have alternately reduced and added container shipping capacity to the system.
     "More shippers are trying to lock in prices and stay out of the spot market," said Chad Rosenberg, president and CEO of American Global Logistics. "It's always a balance between space and rates."
     Rosenberg said the spot market price for shipping a container from Shanghai to the West Coast, for example, has shot up from about $1,400 last December to $2,400 today.
     "If you want the space, you're going to have to pay a premium if you're shopping around the spot market," said Jim Alemany, director of logistics execution solutions for Descartes Systems Group.
     Joining Wolfe, Rosenberg and Alemany on the panel were Davis Lee, director of import/export logistics at Samson Marketing, and Scott Miles, vice president of stores and development for Atlanta-based retailer Havertys.
     Wolfe and Lee said their companies, both of which are major furniture importers, try to get ocean freights rates locked in by negotiating contracts with steamship companies. However, unexpected spikes in demand in the U.S. sometimes send them to the spot market anyway.
     "What happens in the spot market affects these contracts as well," Lee said. "The carriers are only going to look at what's profitable for them."
     Miles said Havertys, which imports much of its furniture directly, is sometimes frustrated by steamship companies that add surcharges or other items that aren't part of their contract with the retailer.
     "All I'm asking you, as a carrier, is to hold up your end of the bargain," Miles told the audience. "If they don't do that, there are plenty of other choices out there."
     Rosenberg noted that steamship companies collectively lost $6 billion in 2010 because they added capacity just as demand for cargo space flattened. While demand has increased in the past 12 months, he doesn't think it will grow fast enough to absorb all the additional capacity from the mega-vessels.
     "With the extra capacity coming online, I think the ocean freight companies will continue to lose money," he said.
     Several panelists said they were skeptical of the potential impact the widened Panama Canal, which is scheduled to open in 2014, will have on products imported from Asia. Wolfe, for example, said Norfolk, Va., is the only East Coast port that currently can accept the new mega-vessels.
     "I think the immediate impact will be very small," said Lee. "Not enough of the East Coast ports are ready."
Alemany said most of the ports are only in the early stages of making the necessary infrastructure improvements to make the widened canal useful.
     "If they don't put in the rail connections and get other infrastructure up to speed ... it won't make a lot of difference," he said.

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