‘There’s competitive fun with Apple’


Bloomberg

Massive cargo ships are overtaken by agile fleet in a new race of speed

(Bloomberg) – For years, shipping containers was a tough business. Margins were tiny, risks were high, and growth prospects were balanced with the unpredictable tides of world trade. That it is now generating record profits is one of the great economic surprises of the pandemic. The transformation over the past year also discredits a premise voiced by experts and politicians in recent years that trade between the United States and China, the most vital route of international trade, was heading inexorably down a path of constant decline. The world wants more from China Inc. today than ever, and as the containers stacked on a ship stuck in the Suez Canal this week illustrate, companies in the US and Europe need it faster than ever. demand is so strong that shipping customers are also increasingly willing to pay for it. At Matson Inc., a Honolulu-based company with a fleet of smaller, more nimble vessels that charge a premium over shipping rates on much larger ships, the need for fast service from Shanghai to Los Angeles became so great. that executives decided to add a second weekly run last year and make it a permanent offering. “I got calls at 2 a.m. from customers saying ‘Look, you have to do something, you have to help me,”‘ Matthew Cox, CEO of Matson, said in an interview that Matson’s core business is transporting commodities to Hawaii. and Guam and ranks outside of the top 20 largest container lines. But its shares jumped nearly 40% last year and the industry as a whole is healthier than ever, topping $ 200 billion in estimated revenue in 2020. It is conceivable that major players, including AP Moller-Maersk A / S from Denmark and Cosco Shipping from China. Holdings Co. ended a tumultuous year with its most profitable quarter to date. Another $ 1.9 trillion in fiscal stimulus from the US may keep the good times in 2021. Maersk CEO Soren Skou said Tuesday that “we have to hope that some of that money will be used to buy goods that need it. be transported. ”Still, running full steam has revealed how temperamental the backbone of the global trading system is when stretched: crews are overloaded with work, thousands of containers have fallen overboard offshore, and the ship blocks Suez threatens broader economic problems if traffic jams for more than a few days.Read more: Suez Canal tangles with giant ship stuck in upper commercial artery Beyond setbacks, shipping companies have b They are driven by a confluence of factors. First, governments from Australia to Belgium kept consumers full of cash and their financial systems liquid. China’s ace and American consumers quickly recovered from last year’s initial shocks and emerged from three years of supply and demand turmoil, a trade war between the United States and China followed by the pandemic, still intertwined. “China is still the manufacturing floor of the world,” Cox said in early March. “There are problems that are real and need to be addressed, but that does not change the fact that China has built a very capable network that in the short term people will find it very difficult to replace. ”For six decades before Covid- On November 19, American household spending on goods declined proportionally as Americans spent more on services. That trend changed in 2020, with an increase of $ 523 billion in freight purchases, calculates McKinsey & Co. “All freighters and transportation assets were more or less absorbed by the robust trans-Pacific trade route,” said Ludwig Hausmann, partner in McKinsey’s Munich office. “China at the moment is unbeatable.” In Washington and in European capitals, politicians vilified supply chains that extended to state-run economies like China or Vi etnam. But if you talk to Asian-dependent retailers and manufacturers, it’s clear that the crisis reinforced those ties. Serving as a reminder to diversify suppliers and show praise for globalization was premature. Shipping and inventory holding costs have risen, but not enough to avoid new supply risks ranging from weather and tariffs to disease. Business resilience “Companies have basically decided that they can manage that and still pursue these efficiency gains,” said Robert Koopman, chief economist at the Geneva-based World Trade Organization. “That helps explain why the trade has been resilient.” Ask Heath Pittman about the crisis and he will tell you about the three months he spent in Chicago making sure cargo kept moving so shelves remained stocked at Rural King, an Illinois-based chain of around 125 stores. of general merchandise in a small town in the United States. Rural King’s international logistics manager used 10 times as many 40-foot-long containers to import lawn mowers from Vietnam in 2020 than the year before. Pittman wasn’t going to be short on 2021 either, importing nearly three times as many containers of lawnmowers last year. A consolidation facility will open in Vietnam in June, complementing five already in China, with the aim of ensuring that there are always enough products available. “That’s a lot of cost to us and that’s a lot of risk,” Pittman said. “But from the overwhelming positives we get for our customers, we have determined that it is worth more than being overbought.” Supply and demand were challenges last year for Polaris Inc., the maker of snowmobiles, motorcycles and ATVs that, in two strokes of pre-pandemic serendipity, had already begun to bolster its supplier base a few years earlier before switching. brand in 2019 to “Think Outside”. Behind nearly 3,600 Polaris distributors is a production network that powers factories in Asia, North America and Europe. Manufacturing a single Polaris RV involves up to 2,000 parts, an achievement when roughly 10% of suppliers at any given time were under some form of Covid-related duress, said Ken Pucel, executive vice president of global engineering and operations. The Minnesota-based company adjusted assembly lines to make products based on available parts. It used more artificial intelligence and digital technology. He sent an employee to Los Angeles to run an operation that is generally left to logistics providers: the flow of container imports. “Port congestion is one of the biggest problems in our supply chain today,” said Pucel. Trans-Pacific issues have also reached Europe, where XSTAFF GmbH, a Düsseldorf-based retail and wholesale purchasing network, chartered its own cargo ship in February to help ensure members could import goods from Asia. Rates for a 40-foot container from China to Europe are around $ 8,000, nearly quadruple the cost of a year ago, and will likely remain above $ 5,000 at least through June, XSTAFF President Bodo Knop said. “The demand side is much bigger than the supply side,” he said. These imbalances will eventually level out. While trade in goods is not likely to return to its peak at the height of globalization a few decades ago, expanding twice as fast as the world economy, the WTO’s Koopman expects a return to the long-term average of 1.4 times the global growth. will continue to feed that. “Many people first experienced the convenience of clicking a button and having a product on their doorstep,” said Ryan Petersen, founder and CEO of Flexport, a San Francisco-based freight forwarder. “That is addictive.” Petersen acknowledges that better technology will help the shift toward greater speed and complexity, but does not anticipate “big dramatic shifts” in supply chains or production locations. John McCown, the founder of Blue Alpha Capital, has seen a lot of shipping booms and busts. His mentor was Malcom McLean, the North Carolina trucking executive who pioneered containerization in the 1950s. If a global upheaval like a pandemic could pick its prey, an industry with high fixed costs like massive ships seemed be among the slow buffalo. “A real bloodbath is what I was thinking,” McCown said. Instead, container lines stuck together and didn’t repeat the price wars that ruined them in the past. McCown now estimates that the operators he tracks, both public and private, will show a record net income of $ 8.4 billion in the fourth quarter. Container services are cheap even at today’s high rates, he says, recounting how McLean was friends with Sam Walton, the founder of Walmart Inc.They both enjoyed quail hunting and McLean once asked the retailer’s key to success. According to McCown, Walton responded, “We’re just better at moving things around.” For more articles like this, visit us at bloomberg.com Subscribe now to stay ahead with the most trusted source of business news. © 2021 Bloomberg LP

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