Full Steam Ahead? What is the impact of the announced COSCOCS merger?
Ever watched the movie "Titanic?" Remember the scene when the First Mate gives Captain Smith the wireless warning from company headquarters about the ice bergs along the ship's planned course and the Captain subsequently orders the First Mate to "make turns for 20 knots...full speed ahead." The Mate then looks at Captain Smith in complete dismay for ordering the ship to full speed in spite of the obvious danger. Unfortunately, Captain Smith discovered the hard way that the Titanic was not “unsinkable.”
Major shipping line consolidations are what has happened as a consequence of companies not heeding - nor taking immediate action as a consequence of the economic warning signs that have abounded for a long while. Many shipping companies are now at the place in the movie when the two sailors in the crow's nest are shouting - "ice bergs dead ahead" and have recognized that it is now time for an immediate course change or their business faces certain disaster. Unfortunately, for many shipping companies – it may be too late to change the course of their fate.
The announced mega-merger of Cosco and China Shipping leads to several points but none more important than the fact that these giant mergers are done with the purpose of consolidating costs in order to help them 'weather" the storm of the current world-wide financial crisis - brought on primarily by the continuing Chinese economic slowdown. These companies and others like them are now faced with a fairly immediate financial crises of their own. In order to prevent a "titanic like event" - they are attempting to slow down cash outlays while trying to avoid hitting the proverbial “economic ice berg” that would eventually bring them to the same fate as the Titanic itself.
What does this mean to your company? In the near-term this is going to bring about economics that reduce the supply of services available to customers - which translates to higher prices of moving goods. The simple laws of supply and demand dictate that when supply is reduced and demand remains constant - prices will naturally increase. Additionally, as has been true in the past – when companies embark on the consolidation path they move to trim costs in every way - including reductions in services. This represents the "double whammy" for many players in the industry - reduced choices for customers - combined with increased prices charged by these mega-carriers. Additionally, this effect has traditionally caused increases in the "time per transaction" throughout the supply chain process due to the overall reduction of service choices available to customers.
These kinds of multi-billion dollar decisions are not made by these companies without a great deal of analysis and forethought that decidedly point to a long-term world-wide economic problem that is not easily "fixed." The merger announcement commentary by COSCOCS provides a valuable insight into not only the reasoning behind such a momentous decision – but to their own “read between the lines” forecasts of future business conditions. In summary, it can be concluded that optimism is not the current driver of the shipping industry.
As Allports also looks to heed the call from the crow’s nest - we endlessly strive to find the most cost effective and efficient total transportation solution that completely satisfies our customer’s needs and helps you stay ahead of managing the key elements of your supply chain in these persistently challenging times.