Report from 2009 Trans-Pacific Maritime Conference (TPM): Ron Widdows speech
On Monday, March 2, Ron Widdows, President and CEO of NOL Group, parent of APL, gave the keynote speech at the 9th annual Trans-Pacific Maritime Conference. His comments on the global economic slowdown were anything but rosy. In his speech, Mr. Widdows painted a rather grim picture of the future – IF the responses by both governments and companies were not adequate or timely enough to turn things around.
“Whether it’s a recession, whether we’re headed for a depression, whatever you want to call it, we’re certainly seeing a big play on the world that we haven’t seen before.,” said Widdows. “At least not within the scope of modern containerization………Unfortunately it’s probably going to get a lot worse before it gets better.”
Presenting charts and data on GDP and demand, Mr. Widdows said exports are plunging and demand is weak. “I can see volumes and changes that used to take a long time that are happening by the week – which is pretty frightening.”
“The U.S. economy is stalled and is headed for a bad place.”
It’s no surprise that consumer confidence is down. As of February 24th last week, The Conference Board had their Consumer Confidence Index pegged at 25 (1985 = 100). That’s down from 37.4 in January. For an illustrative perspective of what’s happened to consumer confidence, check out these charts. Weakening consumer confidence and demand has retailers and importers scaling back inventory. This has led to some in the industry crossing their fingers hoping for a recovery in import volume to the U.S. as companies eventually are forced to replenish bare inventories. Mr. Widdows suggested we don’t hold our breath, because the inventory to sales ratio is a completely different picture. Because sales have dropped so far, inventory levels, as they relate to sales, still look high.
“The notion that inventory re-stocking is going to develop a huge increase in volume to the U.S. anytime soon…that’s probably not what we’re going to see in this future.”
He also mentioned that trade wars were a future possibility should unemployment continue to rise and people look to a political solution through protectionist measures. He cited that countries were already instituting protectionist measures, the U.S. included (as part of the recently passed stimulus plan requiring U.S. sourced materials on certain projects) and that such measures would simply hurt world trade and prolong the recovery.
Mr. Widdows had high hopes for the Chinese government’s stimulus package, citing it’s massive infrastructure spending. “It would be a wonderful thing if that could be done here. Unfortunately our government does not have that will, at this point in time. In China, enormous infrastructure development will take place.” He believes that as China develops its infrastructure, that will further open up inland China, pushing manufacturing to cheaper locations where it previously had little to no access to the ports. This will allow China to remain competitive in years to come. “China is going to continue to be competitive.”
As for the shipping industry, Mr. Widdows said we would see a “restructuring”. Citing the oversupply of ships, despite capacity cutting measures already taken, there is simply too much capacity coming online due to the delivery of new vessels ordered during the boom years.
West Coast ports, particularly the Ports of Los Angeles and Long Beach, who traditionally have not had to worry about cargo volumes, will finally be forced to adopt a competitive mindset. He drew attention to the widening of the Panama Canal, which will allow larger vessels to bypass LA/Long Beach and expand All-Water East Coast services.
Despite all of these doomsday scenarios for the economy, Mr. Widdows stressed that there were decisions and actions that are and could be taken that could affect the outcome and progress of the economy:
- Parties to West Coast port operations (ILWU, terminal operators, rail operators) are going to have to think differently and take competitive actions in an environment where volume is simply not going to grow.
- What can carriers control? Costs. How some carriers control their costs and improve efficiencies may mean the difference between survival and failure.
- Container line customers have got to leave the carriers enough to maintain services. Massive rate cutting will only exacerbate container line woes and speed up possible failures.
- The new administration and all our other representatives in the government, you have to hope and pray that they will be successful. Regardless of your political leanings, these people need to succeed if we are to pull out of the slump we are in. Unfortunately the will to do the things that will really get us out of this mess is simply not there. “What’s going on right now is not getting the money where it really needs to be.”
- Things will eventually turn around – it’s a matter of time. But the speed with which things improve is affected by the decisions and actions our government is taking to get us out of this mess.
- The days of easy finance are gone. Financial companies are tightening up – no more easy credit.
- There will be infrastructure development here in the U.S., but perhaps not enough or not in the right places to really spur development. There are actions that could be taken here that would greatly benefit the United States trade development over many years to come.
- Fuel costs are going to increase.
- Capacity is going to have to come out. Carriers will be challenged to continue to provide service while slashing capacity.
Bottom line: things will eventually turn around. But they will get worse before they get better. The actions being taken today – by both governments and companies – will affect how quickly the economy turns around, hopefully for the better.
We’ll be having more roundups from last week’s TPM conference throughout the week. If you were there and would like to comment, please sound off in the comments section.
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