RISK REPORT: MARINE
A Sea Change in Risk
issues have marine
By David Godkin
The bankruptcy of Hanjin Shipping Co. put a spotlight on struggles in the container shipping industry.
It all seemed to happen in a heartbeat: A struggling industry went from bad to worse as one of its largest members filed for bankruptcy. Panic set in among Hanjin Shipping Co.’s customers over goods stranded at sea and litigation lawyers began lining global ports to pick up the pieces. Suddenly, the risks posed to container shipping by overcapacity, low
profitability, and volatile or inadequate pricing crystalized. What, asked other
ocean shippers, did this mean for us?
Jim Blaeser pulled no punches when answering that question. In a study in
February of last year, his New York employer AlixPartners warned that piecemeal
cost-cutting, vessel-idling or slow-steaming in maritime container shipping would
do little to curb overcapacity and stem falling profitability and precarious cash flow.
In fact, said the company VP, things would likely only get worse unless industry
embraced a major alternative: consolidation.
Was AlixPartners’ prediction borne out? Well partly, said Blaeser. “The first
three quarters were dismal as we called out; the fourth quarter when results are
published in full by the companies should be considerably better. But I think the
jury is out on whether carriers will be able to ride that wave into 2017.”
Blaeser said the idea that higher rates sustained into the Chinese New Year will
chase the industry’s blues away were “wishful thinking.”
At the same time, Blaeser said, consolidation will place more and different
demands on risk managers.
As fewer operators like Maersk and MSC control more capacity, “you’ll need to
CONSOLIDATE, COMMUNICATE … CONVERT?
have a much stronger global reach for corporate control and command to ensure
that your risks are understood and that they’re appropriately mitigated.”
By definition, the focus as a risk manager shifts “from your own backyard to a
global field of play,” he said.
Where that field of play looms particularly large is information.
“Ocean freight information is just terrible across the board,” said Blaeser. That
stems in part from merger integration of companies with “three, four, five systems
handling different pieces of information,” such as for truck, terminal and vessel
“I would argue that, as consolidation takes root and there are fewer carriers,
inherently information has to get better,” Blaeser said. That may happen as rates improve
and companies spend more on effective software information management tools.
Rick Roberts, director of risk management at Connecticut’s Ensign-Bickford
Industries (EBI), is sufficiently alarmed by this and other news to have begun
reviewing his policies and risk management strategies.
But it’s not just the risk posed by overcapacity, it’s the risk of consolidation itself.
EBI transports hazardous military goods to Europe and pet food to South
America. Insufficient information and possible changes in global routes as
companies merge their respective customer bases, for example, give him pause.
“I see we’re going to have some issues where routes are changing and how long it
could take for our products to get places.
Maybe it used to take 10 days to two
weeks and now maybe it takes a month.”
For his part, Ali Rizvi, senior vice
president at Marsh in Houston, said the
three biggest challenges shippers face
are fuel, crew and ship management.
Consolidation obviously allows merged
companies to use crew more efficiently
and renegotiate bunker fuels, while
economies of scale present opportunities
for more efficient operations overall.
“But does it solve the problem of
overcapacity? We don’t think so,” said
But does [consolidation] solve
the problem of overcapacity?
We don’t think so.”
— Ali Rizvi, senior vice president, Marsh
• Container shippers struggle with
overcapacity, low profitability, and
volatile or inadequate pricing.
• Consolidation in the industry may
decrease volatility and increase
• Policy sublimits may make it
difficult for companies to fully
collect on megaship container