A Conversation with Jeff Parker,
LQ: How has the rise of the Canadian dollar in 2007 impacted charter rates?
Jeff Parker: Assuming your question refers to our rates for transport, both maritime and intermodal, the biggest impact has been on the inland cost segment of our rates. In that area, we are in a constant effort to achieve full cost recovery — a real challenge given the volatility of energy costs and their ripple effect throughout the transportation pipeline.
LQ: With respect to drayage, is the shortage of truck drivers affecting your business and that of others?
Jeff Parker: I can’t speak for other companies, but we have not had any significant problems related to shortages of drivers. We work with carefully selected service providers and our contracts include performance clauses. The changes in contractual permitting with drivers and truck operators serving the ports of Vancouver seem to have addressed issues that had resulted in labor stoppages and service disruptions there in the past.
LQ: In terms of railways, is there a capacity problem and, if so, what is its impact?
Jeff Parker: We have not seen serious problems with rail capacity in the U.S. or Canada. The most serious rail bottlenecks have instead been related to seasonal (usually winter) delays and intermodal service disruptions to the east caused by heavy snows in the Canadian Rockies. Such delays have, in some years, led to a backup of cargoes and equipment in Vancouver and delays in moving cargoes and equipment to and from customers in western and mid-western Canada and the U.S.
LQ: How have circumstances in the Middle East impacted vessel costs?
Jeff Parker: That would be in the cost of fuel.
LQ: What has been the impact of rising fuel costs?
Jeff Parker: The skyrocketing cost of fuel is one of the biggest challenges facing the transportation and distribution industry as a whole. Clearly, marine transportation represents one of the world’s most efficient means of goods movement in costs per ton/mile. Nevertheless, cargo ships do consume large amounts of fuel on trade routes, many of them thousands of miles in length, and we must do everything we can to control costs where possible and at the same time recover this major expense from our customers (and ultimately the end consumer) through our rates and bunker fuel adjustment charges.
While nobody wants to pay more for services, the surge in fuel prices is worldwide and highly visible and certainly transparent to our customers who have been understanding of, while not always happy with, its impact. We try to explain to our customers as well, that industry mechanisms for computing these rapidly rising costs mean that we trail the actual price rises in an up-cycle in terms of recovering those increases through rates and adjustments.
As an example, we commonly average our costper-ton for bunker fuel over a two month period to determine the adjustment factor we need to recover those rising costs, then announce the rate and wait 30 days before implementing it. As a result, we are regularly 2–3 months behind in recovering the increased costs from the time they were actually incurred. The volatility of market prices is a constant challenge in this area. As an example, our average cost-perton for bunker fuel for 2004 was about $180 U.S. In 2007 that figure stood at $369 per ton and in November and December, our monthly average figure was running very close to $500 per ton.
LQ: Your forecasts for 2008–2010?
Jeff Parker: Right now, we see a generally strong export growth from the U.S. and Canada over the next roughly 18 months to both Latin America and the South Pacific The weak U.S. dollar makes products less expensive for overseas buyers and in the Canadian market the rise in value of their dollar has had a relatively mild impact on exports and stimulated imports. Export volume southbound to Latin America has been strong because of those factors and rates are solid as a result. There will be a new U.S. administration in a year and it is possible there may be a change in policy on valuation of the dollar. However, that could take another 6–12 months to take effect after the next election, so it is difficult to predict what might happen beyond then.
LQ: Do you see a weakening or strengthening of the charter market?
Jeff Parker: All signs are that the charter market will remain strong for the next 18 months or so, at least. However, Hamburg Süd has, over the past several years, been engaged in an ongoing program to increase the percentage of its owned fleet vs. charters to better control its costs. Our Latin American Tango service for example, uses a fleet of six purpose-built companyowned vessels whose common design, speed and flexibility set new standards of efficiency and schedule frequency and reliability for the service. A similar homogenous fleet now operates between Europe and East Coast South America with vessels offering the largest containerized reefer capacity of any ships in the world. Questions for this Executive Interview Series have been prepared
Questions for this Executive Interview Series have been prepared by Ed Kearns, LQ’s Maritime Editor and Advisory Board member.