Air freight rates and slow demand from key markets might be proving somewhat dispiriting for airlines this year, but if anything the container shipping sector—and its customers—are suffering even more than their airborne counterparts (and sometime rivals).
     Shipping lines have been struggling with bearish volume growth of just 2-4 percent for much of the year, while shippers and forwarders have had to cope with two years of almost monthly General Rate Increases by lines on the major trades. Even when GRIs have gained some traction initially, a typical pattern has seen any short-term spot rate gains quickly followed by sliding rates until the next GRI has been introduced. The upshot has been a rates roller coaster the management of which has become costly business for all parties.
    And this damaging cycle shows no sign of stopping. Excess supply—the key cause of plummeting prices and regular GRIs as lines look to reduce losses—looks like it will plague the market for at least the next 12 months, as ocean carriers continue to order the largest, most fuel efficient vessels in a bid to reduce average container slot costs and maintain competitiveness and market share on the critical Asia-Europe and Transpacific lanes. But the strategy is further adding to the imbalance between supply and demand.  And attempts to differentiate on service are no longer taken seriously—liner shipping services are treated as a commodity, so predictably price trumps all else.
    Moreover, demand growth estimates have been far too optimistic for 2015. Although U.S. markets are performing relatively well, demand out of China has slowed and Europe remains, at best, in recovery mode. The latter is of particular concern to lines because the Asia-Europe trade is the only deployment option for the biggest container ships. Up to 90 percent of vessels operating on Asia-Europe are now estimated to be making a loss. Lines have countered with blank sailings, slow steaming, and seasonal services to increase slot utilization levels on East-West trade, but the dip being suffered by a number of key ‘emerging’ economies is also now hurting rates and demand on North-South routes.
    Most major lines reported high single-digit or double-digit percentage year-on-year declines in average yield per TEU in their first half results as the China Containerized Freight Index fell to 819 in the second week of August, down from over 1,000 points a year earlier.
    Mr. C. C. Tung, chairman of OOIL, owner of Hong Kong-based line OOCL, said the industry experienced a volatile period during the first half of 2015.  “In the earlier months of 2015, the industry enjoyed a relative stable freight market,” he said. “Through the combination of the normal seasonal cargo rush prior to Chinese New Year, capacity constraints arising from port congestion and disruptions in the U.S., and an improving cost structure created by lower oil prices, the industry made meaningful gains in margin performance.
    “In the latter half of the reporting period, with idling ships reactivated and new build capacity delivered, freight rates moved rapidly downwards, forcing margins to narrow.”
    With many lines struggling financially, efforts are again turning to consolidation. The two Chinese shipping giants—COSCO and CSCL—are in talks about merging. The deal was called “ironic” by analysts at Drewry given that it was Chinese regulators that had previously stopped a group of major shipping lines from joining forces on competition grounds.
    Drewry also believes the proposed deal could lead to further consolidation of shipping lines on national lines with Taiwan and Japan, both boasting a handful of shipping majors, the most likely countries to follow suit. Elsewhere, Singapore’s APL is also understood to be available for sale, with Hong Kong’s OOCL widely thought to be the most likely buyer.
    Removing some of the fragmentation on the liner side may help cut costs and increase pricing control. But it won’t remove ships from the global fleet, and it is their presence—with more ships to come—that is the key cause of pricing fluctuations and the high costs other supply chain players incur in managing the current rates roller coaster.
    So while airlines might be struggling to keep their cargo operations in the black, in many ways they are still far better placed to manage capacity and pricing than their ocean peers.
Sky King

     The trade community has been hearing that the Advanced Commuting Environment is coming, or “ACE is coming,” for 22 years now and it seems ACE will become a reality on November 1, 2015, regardless of whether system is ready to perform or not.
    A Feb. 2014 Executive Order has mandated the use of ACE and the government agencies are scrambling to make that deadline.
     Within the past few years, CBP has begun the use of agile development to drop functionality sections of the ACE programming into production and software vendors have been making constant updates, changes, and procedures to their systems to meet the new requirements.
     The average importer has no idea what struggles the logistics and software firms have had trying to adapt to a fluid program in just a few months, sometimes weeks. And lest we forget, the government agencies themselves are struggling to learn new programs, processes, and procedures.
     In the past year we have seen some significant drops in ACE and some significant debacles, too. For example, May 1, 2015, was the mandatory date for filing all manifest in ACE. Ocean (ACE M1) dropped with little disruption sometime back. However, when the Air ACE manifest was released in June, there was major disruption in the trade community. Some brokers reported, “With the crash of the ACE Air Manifest system, we have a number of air shipments that were not released for more than 3 days. Where should we tell our clients to submit their claim for storage charges incurred because of the ACE Air Manifest failure?” CBP had tested for months but did not anticipate the numerous filings that would be received after the pilot ended (with, by the way, only 9 participants allowed in an initial pilot). Individual U.S. Customs Ports were issuing Port Pipelines on how to handle the releases and brokers were caught up in the need to contact individual ports for how to handle release of cargo, as well as having to negotiate with each carrier for the storage incurred.
     The November 1, 2015, mandate for processing all entries in ACE seems virtually unreal considering the over 20 entry types that can be filed; ACE currently only accepts types 01, 03, 11, 51, and 52. Currently there are 5 PGA’s (Participating Government Agencies) underway in ACE—keep in mind there are approximately 48 agencies that have regulatory authority in international trade matters.
     Just last week, CBP sent this message:

CSMS# 15-000622 - ACE Cargo Release Processing Errors
ACE Cargo Release experienced processing errors affecting Cargo Release Status Notifications (SO messaging) and release postings to manifest from Friday afternoon, August 21, 2015, through Tuesday morning, August 25, 2015. CBP is working to resolve all of these transactions.

     That amounts to 5 days… can you say storage?  And who pays?  You and me, the consumer—that’s who will absorb these costs.
     One broker wrote:
    “West Coast was having issues too. We have tried Bill of lading updates, Queries and now we are running into storage, so will be forced to cancel the entries and try again!
    “And remember when I said they would blow up the Entry Docs required on RLF entries? Well, we are 50-50. Half of all RLF entries we have filed have gone entry docs required and are taking 1-2 days (instead of 1-2 hours) to release! (and we previously had 100 percent paperless releases since we submitted AII with the RLF entry).
     “But wait, there’s more. How about these PGA guidelines (450 pages for FDA, 100 pages for NHTSA)—who is reading all of that? Scary!
    “No way I can see the November deadline staying in place.
    “OK, I’m done!”
     Letters have been written from COAC, TSN, and others to CBP Commissioner Kerlikowske with copy to White House representatives Christine Turner, director, Global Supply Chain Security, National Security Council; Jeff Weiss, chairman, Border Interagency Executive Council (BIEC); Alan Bersin, assistant secretary (Acting), Department of Homeland Security; Alejandro Mayorkas, deputy secretary, Department of Homeland Security; Timothy Skud, deputy assistant secretary for Tax, Trade and Tariff Policy), U.S. Department of the Treasury; Christa Brzozowski, counselor to the Deputy Secretary, Department of Homeland Security stating in part “the TLC is convinced that the plan for mandatory use of ACE/ITDS for all entry summaries and cargo release transactions, including the new PGA message sets, on November 1, 2015, is premature. Adherence to this deadline threatens to compromise the investments made by the government and the private sector and to disrupt commerce between the United States and the rest of the world. A misstep by the United States with respect to the implementation of a single window will set back similar efforts in other areas of the world. We are concerned that proceeding with the November 1, 2015, deadline will result in unwarranted expense and disruption for both the Trade and the U.S. Government and will harm future and ongoing efforts to continue the development of ACE/ITDS.”
     ACE has tremendous abilities, but needs to be implemented in a way that will not disrupt U.S. trade or result in enormous additional costs associated with it during the implementation stages.
     Stay tuned… there is a Race for ACE in our future and includes ACE export requirements. We’ll see.
Donna M. Mullins

    Editors Note: Donna Mullins is president of Alpha Sun International, based in Atlanta, Georgia, USA.
    Donna, who by any measure is both professional and concerned, serves the community in the air cargo business as a stalwart member of The Atlanta Air Cargo Association at Hartsfield – Jackson International Airport.
    The great thing about this wonderful lady is that making extra efforts for clients and community are all part of a day’s work for her.
    But rather than put the spotlight on herself and her company, she gladly advances everybody.
     “Too often in the air cargo business we don’t realize what is required to bring items, including animals, into the U.S. and that you can be as large as a Delta or Lufthansa, or you can be as small as an Alpha Sun International or New Vision Transportation and play an integral part in the supply chain,” Donna once told me.
    We often forget how far down the trail dedicated and decent air cargo people like Donna have brought our business.
    Thanks.
Geoffrey

     It has been our pleasure to know and work with Emirates DSVP Revenue Optimization & Systems Pradeep Kumar during our 40 year tenure in the air cargo business.
     Soft spoken, determined, and a part of the “Dubai Miracle Airline” since start up in 1985, Pradeep will now pack it in and begin life after air cargo. He retires from Emirates Sky Cargo this October after 30 years of service.
     For all his years in air cargo, Pradeep was usually out of the spotlight—it was Ram Menen and others who played the media darlings of the show.
     His friend and colleague, Ross Barnett, Emirates Cargo manager, Northern England & Scotland, captures Pradeep perfectly:
     “After serving EK and working so hard, Pradeep certainly deserves to take things a little easier in the future.
     “Pradeep Kumar is a very wise cargo professional.
     “He is a humble and friendly gentleman with an enormous knowledge about our industry.
     “He will be missed.”
      We recall Pradeep the “quiet man;” rock solid, cool as a cucumber, and always on the mark, he was a key member of the team guiding Sky Cargo business development, designing new product ranges, implementing short/long term business strategies, and setting revenue objectives.
     As the “quiet man,” he was always willing to do his bit and let someone else get the glory and take the bow.
     People like Pradeep make air cargo great.
     Happy landings, always, to our dear friend.
Geoffrey