The best things come in small packages

We’re being told that everything is just hunky-dory with the world’s economy, but don’t you believe it. Only last week, the second and third-largest global container shipping companies – France’s CMA CGM and Switzerland’s Mediterranean Shipping Company – announced what they termed ‘a broad-based operating partnership spanning several trades.’

According to Cargo Business News, the two liners said that they would be able to “deploy the best ships in each of their fleets, while increasing the number of ports of call and frequency sailings.”

“This agreement offers us new opportunities to optimize the use of our respective fleets, improve our transit times, and increase our performance,” said Diego Aponte, vice president of MSC.

“Our two shipping lines have followed the same trajectory for more than 30 years,” chimed in Rodolphe Saade, executive director of CMA CGM Group.

Those gentlemen actually gave those recitations with straight faces, in spite of the fact that headlines all over the world are telling a different story.

Earlier this month it was announced that CMA CGM lost $ 223.8 million in the third quarter alone, and Moody’s downgraded almost a billion dollars of the carrier’s debt for the second time in three months, citing the liner’s weak third quarter performance.

The truth of the matter is that this “broad-based operating partnership” is more than just an alliance. It’s really a retrenching strategy, and the two carriers give as reasons for this tactical retreat, “over-capacity, depressed freight rates, and higher fuel costs.” Don’t believe that, either. The whole industry is panic-stricken.

For example, Hamburg Sud, Maersk Line, CSAV, China Shipping Co, and CMA CGM are also “aggressively restructuring” operations in order to combine, and salvage, their Asia-South America services and profits. The new joint service will utilize 11 vessels with capacities of 4,200 to 4,600 TEUs. More about this strategy later, but at least the announcement has a ring of truth about it. The companies admitted that the step is being taken to “stave off weak demand and overcapacity.”

There you have it – the whole truth in just a few key words. Weak demand and overcapacity. But those are the “effects” we’ve been stressing. The underlying “cause” is being swept under the rug by those who are too stupid to recognize the relationship between supply and demand, or by those who feel they might lose their seat on the gravy train if the status quo undergoes rearrangement.

So, what does “overcapacity” mean, and what does the decision to use smaller “4,200 to 4,600 TEUs” indicate? It’s pretty obvious. In order to preserve market share, smaller vessels save the day. But here’s the kicker. An MSC official just said that “a prolonged industry slump will likely spur demand for larger vessels”! Were we wrong to describe industry officials as being “too stupid?”