Steve Hughes is vice president of supplier development, government affairs and logistics at Centric Parts. He additionally serves as a shipping expert for organizations such as the Motor Equipment Manufacturers Association (MEMA), the Auto Care Association, the Brake Manufacturers Council (BMC) and the California Automotive Wholesalers’ Association (CAWA) and is also a member of the Department of Commerce/U.S. Trade Representative Industry Trade Advisory Committee for the automotive industry, known as ITAC2.
Q: Are there alternatives for moving products across the high seas if a particular shipper is in financial trouble?
A: This is not an easy question to answer and is in fact quite complex. There are many shipping companies that can be used, but only a few alliances. In recent years the ocean carriers have gone to a model very much like the airline industry in that they are co-loading/sharing vessels.
Example: Hanjin belongs to what is widely known as the CKYHE alliance. The CKYHE alliance is made up of Cosco, K Line, Yang Ming, Hanjin and Evergreen. Even if a company were prescient enough not to sign a contract with Hanjin this season and signed with one of the other carriers within the CKYHE alliance, their cargo could easily end up on a Hanjin vessel at any given time.
Additionally, the carriers from the various alliances will sometimes put cargo on ships in another alliance. That means there is no hard and fast rule of how best to protect cargo from being ensnarled by a bankruptcy like we are seeing now.
There is change coming next year to the shipping industry. Currently there are basically four alliances to choose from. We use carriers from all four alliances to spread out our risk. Next year, the four alliances are changing/consolidating into three. Consequently, it will be even more difficult to mitigate risk.
With that in mind, importers and exporters need to review and update their blanket marine insurance policies to make sure they increase coverage to account for this change and possible higher concentration of cargo on a given vessel.
Information is everything! The key to avoid a Hanjin-like situation in the future is to recognize those shippers that are financially viable versus those that are not. That being said, this is difficult by any measure.
However, as I’ve been doing for a long time, the best defense is to make sure that you keep up to date and as educated as possible on the shipping industry news. My main source of information is the Journal of Commerce. It is a subscription-based service that I find invaluable. I also read Container News.
A majority of the ocean carriers are in dire financial straits. This makes it even more incumbent upon individual companies and their logistics departments to keep up to date on the latest news in the shipping industry in order to make sound decisions.
Q: If a shipper is facing difficulties in delivering the goods, is there a typical time-frame regarding how quickly a solution must be found?
A: There are all sorts of reasons an importer might face difficulties having their goods delivered. If you are asking this question in relation to a bankruptcy, I am not sure that much can be done. With that being said, this is a question better left to a maritime attorney.
Q: How dependent is the aftermarket on ocean-going cargoes?
A: The aftermarket is fully dependent upon ocean-going cargo. If a company has to buy its products from overseas there is no other financially viable option.
Q: Given the Hanjin situation, what has been the impact on pricing, availability and practicality of moving products via truck or railroad?
A: Pricing: There was a moderate spike in spot market pricing the first few weeks after the bankruptcy. However, the rates are starting to creep back down. From what I have currently read, given the significant excess capacity in the ocean carriers, I expect to see prices remain very soft for the foreseeable future. For those of us that have annual contracts there has been little impact.
Availability: The Hanjin bankruptcy hit right in the middle of the peak season. We were already starting to see a constriction of available space in the middle of August, brought about by the carriers limiting some service. The Hanjin bankruptcy exacerbated that situation and made things difficult for a few weeks. However, we are already seeing space free up somewhat.
Q: Is shipping by air practical or affordable for the aftermarket?
A: Typically it is significantly more expensive and financially unviable for most companies to ship by air, unless it is an absolute emergency.
Q: Prior to the Presidential election, Hillary Clinton and Donald Trump were both critical of the Trans-Pacific Partnership, a 12-nation deal that would eliminate more than 18,00 tariffs. What is your assessment of the TPP and its potential impact on the aftermarket?
A: Contrary to what you have heard from the various Presidential campaigns, TPP and most of our trade agreements are good for the aftermarket, the U.S. car manufacturers and our industry as a whole.
The Auto Care Association, Motor Equipment Manufacturers Association (MEMA) and the Dept. of Commerce ITAC2 committee are all in favor of TPP. One of the biggest advantages of TPP will be the significant reduction and eventual elimination of onerous duties placed on U.S. products being sold into the overseas markets in question. This will open up markets for the aftermarket and car manufacturers that are currently difficult or impossible for us to break in to.
We are, and have been, working in a global market place for quite some time now. It would be seriously detrimental to our industry and country as a whole to go backward instead of moving forward.
(For more information from the Dept. of Commerce ITAC2 committee visit http://ita.doc.gov/itac/committees/itac02.asp.)
Q: The North American Free Trade Agreement has also been in the political news lately; do you feel that NAFTA has aided the aftermarket?
A: The significant amount of trade going back and forth across the borders between our countries has opened up markets and has been a benefit to our overall industry and country.
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