I interviewed Alessandro Menezes who discussed The Future of the Shipping Industry.
It's great speaking with you again, Alessandro. Today's interview, the topic is the Future of the Shipping Industry. Can you first provide a brief background of yourself?
Definitely, Dustin.Nice to be back and talking to you. I am the global head of transportation for a major global petrochemical marketing distributor and projecting group. We have a worldwide infrastructure and currently looking to a very good expansion with our global reach and capabilities across the continent. I joined this company in 2016 last year in July to hold this global ownership of the transportation sources and operations for thousands of TEUs moved across the globe.
I have 16 years of experience bringing different kinds of values in different managerial roles within the liner container service industry. Since 2012, I decided to move from the carrier side to the shipper side. I have been leading some projects related to safety, cost-to-serve projects and global chemical and petrochemical manufacturers and distributors, including the world's largest exporter of natural soda ash and also a global leader in petro additives. Currently, our headquarters is in Houston where I'm talking to you right now.
What are the key trends you see happening in the shipping industry?
That's a good question. One trend that has been discussed during the last conference relating to world container trade growth. The global conainer volume is, during the last two years, '15 and '16... For the first time in history, they grew less than the GDP has grown historically. Since World War II, the GDP has been always in a lower growth level. And this brings some concern. However, in the last quarter of 2016, with the newest to date available officially, there was a little bit of container growth rebounding in the fourth quarter where the volume growth soared a little bit compared to the previous year. But if you're overall looking from a more extended period of time, the trend is low in terms of global trade.
So in the near term, the container shipping and liner industry is, in my opinion, very unlikely to see the same rapid growth rate that they saw in the past. There will be also a very important test, in my opinion, for the shipping lines — how they will be undertaking mergers, whether they are willing to pay and scrap the ships or how will be the consequence of any consolidation in the industry.
Who will be most affected by these changes?
I would say all players in the supply chain will be impacted because basically, there will be, I would say, three big challenges that will play different roles, depending on the trade lane and the location and the commodity involved. So the first one, it's about equipment availability. Every time you have a change in terms of global trade, it's not even, as I mentioned, in some opportunists are there in the market. For example, here in Houston, we will already see a very significant increase of export volume driven by the production of the petrochemicals of polyethylene and the plants that they are already in the final phase of construction, beginning for the production here in the US Gulf. As you have this competitive environment of the resins I'm talking about which is a commodity in a situation that you have to deal with equipment repositioning costs, the equipment availability is this first challenge that I mentioned.
The other challenge, number two, we have seen already is in regards to the field options that we see in the market. This is a challenge not only involving the shipper where I'm playing right now, but also the ports, the terminals that will most likely be squeezed in terms of losing leverage when sitting at the table and discuss with that global carrier.
Since the year '92, '92 till now, less than half of the large shipping lines remain. We have now more than 80% of the worldwide fleet capacity under alliances. So there are few options. They bring risks of price fixing, marked allocation, even if not permitted by law. But it becomes a very realistic risk.
The number three challenge, because of all these situations and uneven balance is the freight volatility. As I mentioned here, the gulf ports are trying to take advantage of this surge in exports, especially to Asia. After suffering for five straight quarters of financial losses in the global operations, according to the latest results, of course, the ocean carriers will attempt everything to try to negotiate higher service contract rates in 2017. But then you'll have also a lot of uncertainties. The new administration in the United States, the potential for a war among the two biggest economies, the US and China, if that happens. So it can create a very interesting scenario, very unstable. And this freight volatility is my third challenge that will impact the supply chain, Dustin.
How should supply chain professionals address these issues, these trends?
I would say that it's all about risk management. There are some mechanisms that we shippers can do as well as the other players in the supply chain. So first of all, day to day to day, we need to get everybody working with the same goals in the supply chain. Build your analytics. We most really know what the potential opportunity in the whole chain and not look just for the next level.
Ports should sit, in my opinion, with shippers, with trade managers from the major shipping lines, with importers from alternative markets and try to see a common ground. There has to be also among the organizations themselves all the supply chains, they have to pursue internal alignment, getting closer to their sales and marketing department.Especially because it's going to become more critical than ever the demanding forecasts so that there is a mutual benefit in terms of commitment of volume, signature of the contract, but also, a show of the bookings and a volume that the shipping lines keeps overbooking the ships as most do today, and then rolling cargos, that they are really major problems for most shippers.So these, of course, requires a strategic carrier relationship focus. Shippers also will have to get their mind, what is the right balance between long-term fixed rates, balancing contracts versus the spot rate, and analyzing the risks, and last by not least, based on the day-to-day that I mentioned in the beginning, they will have to look together and bring to this carrier relationship management with the carriers with the shipping line are kind of a optimization. That meaning looking really strategically where are the opportunists, the players, and kind of really implementing joint corroborative structures to achieve mutual benefits to both bodies.
Thank you, Alessandro for sharing your insights today on the future of the shipping industry.
You're welcome, Dustin.
About Alessandro Menezes
Global Head Transportation Sourcing | Logistics & Customer Service | Product Management Ocean Freight | Supply Chain