First Quarter 2013: Winners and Losers

Winners (for Now): East and Gulf Coast Port InterestsEast and Gulf Coast port customers will find out for sure whether they’re winners or losers on April 9, when International Longshoremen’s Association members vote on a new contract. The ILA and United States Maritime Alliance agreed on a coastwide contract on March 13, clearing the way for the ratification vote. The contract agreement followed a crucial deal on a supplemental agreement covering work rules and other local issues at New York-New Jersey. ILA President Harold Daggett says he’s confident union members will ratify the new six-year contract. Weary of a year of negotiations and strike threats, port customers hope he's right.

Winners: Maersk Line’s CustomersAsk importers and exporters what bothers them most about the service they receive from ocean carriers, and most will say it’s tardy and inaccurate processing of shipping documents. Maersk Line, the world’s largest container line, released its Customer Charter at the JOC’s TPM Conference in March. Outlined by CEO Soren Skou, the initiative pledges to improve service in eight areas: confirmation of booking, document processing, document amendments, pre-arrival notification, accuracy in invoicing, dispute resolution, accessibility and service recovery after exceptions.

Loser: The Panama CanalFor all the talk about how much Asian cargo East Coast ports would steal from the West Coast when the Panama Canal opens its big new locks in 2015, those ports are already starting to get new services from Asia via the Suez Canal this spring. The Panama Canal stands to lose a lot of services and toll revenue as carriers move to capture lower slot costs on the bigger, more fuel-efficient ships that can use the wider and deeper Suez Canal. Maersk Line is starting a new service this month from Ningbo, China, to the U.S. East Coast via the Suez Canal, and the G6 Alliance plans to start six new services to the U.S. East Coast this spring, with just three through Panama.

Winner: Federal Motor Carrier Safety AdministrationThe FMCSA came out on top of challenges to its truck driver regulations, denying a trucking industry request for a three-month respite from changes to hours-of-service rules and defending those rules against the American Trucking Associations and Public Citizen in the U.S. Court of Appeals. The appellate court still could send the rules back to the agency for revision, but unless the judges move quickly, changes to the 34-hour restart provision will take effect as scheduled on July 1. The changes, which make it harder for truckers to restart weekly clocks after 34 hours off-duty, are forecast to curtail productivity and push up rates.

Winner: Canadian Pacific RailwayFew first quarter earnings will be as interesting as those coming out of Canadian Pacific Railway. While the other Class I railroads report the usual — weak coal traffic, growing intermodal volume and burgeoning energy-related loads — the CP report will likely reveal how the least profitable North American railroad is sharpening its game. The railroad is trimming its networks and work force and jolting the company culture as part of a push by its new CEO, Hunter Harrison, formerly head of Canadian National, toward precision railroading. Investors are taking note, and shippers will likely enjoy even better service as CN steps up its game to stay competitive with a fiercer CP.

Loser: Terminal PrivatizationAfter almost two years of deliberation, the board of the Virginia Port Authority decided the state could make almost as much money over the next 48 years without any risk if it didn’t privatize its four ocean container terminals and one inland terminal by selling their leases to APM Terminals or Virginia Port Partners, an investment group led by J.P. Morgan. The commissioners determined that even the better bid would result in a loss of $54 million in net cash flow for the state when adjusted for risk. In the end, the state would gain by reorganizing operating subsidiary Virginia International Terminals to eliminate duplicate management functions and costs. It’s too soon to tell whether it was right.

Winner: Tony Douglas, CEO Abu Dhabi PortsTony Douglas has had a stellar few months. In December he managed to confound predictions by delivering the $7.2 billion Khalifa port on time and on budget in his role as CEO of Abu Dhabi Ports. Khalifa immediately took over Mina Zayed’s container traffic and, with the gigantic Khalifa Industrial Zone Abu Dhabi adjacent, is poised to offer shippers and carriers a real alternative to DP World’s neighboring Jebel Ali hub in the years ahead. With his reputation in the Persian Gulf soaring, Douglas was appointed CEO of Abu Dhabi Airports in late March. His new role will see him tackle another huge infrastructure project designed to diversify Abu Dhabi’s economy: the multibillion-dollar extension of Abu Dhabi International Airport, scheduled for completion in 2017.

To Be Determined: Hapag-Lloyd and Hamburg SüdWhat is it with shipping that Hapag-Lloyd and Hamburg Süd couldn’t agree to a near-perfect merger that would have been a no-brainer in most other industries? The German carriers were pretty relaxed after failing to merge in 1997, but they can’t afford such a laid-back response today, when economies of scale are key to cutting costs in a troubled market. The merger talks probably flopped because Klaus Michael Kuehne, Hapag-Lloyd’s largest shareholder, was pushing for a merger of equals, while Hamburg Süd’s Oetker family believed their more profitable carrier should wield control. With both lines based in Hamburg, their executives will have plenty of opportunities to consider ways to put profit before personality and convince their billionaire owners of the business logic of creating the world’s fourth-largest carrier.

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