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LONG BEACH, Calif. — Container ship lines can improve on last year’s results if they continue to trim costs and control capacity, Maersk Line CEO Soren Skou said in the keynote speech to the JOC’s 13th annual TPM Conference.

International Ocean Shipping - Capacity vs. Revenue

Skou said global ocean shipping vessel capacity is expected to rise 10 to 11 percent this year while demand rises only 4 to 5 percent. He said, though, that the gap could be bridged by scrapping, idling and slow-steaming of ocean shipping vessels.

“These are the three levers we can use,” he said. “We have to be able to live in a world of overcapacity.”

Maersk posted operating profit of $461 million last year, a turnaround from a $553 million loss a year earlier, as revenue grew 8 percent to $27.1 billion.

Skou said 2013 presents container lines with a bigger challenge, but that the industry is becoming “smarter” about matching international ocean shipping capacity with demand.

He noted that carriers skipped 31 sailings totaling 182,000 20-foot-equivalent units during the recent Chinese New Year, when ships otherwise would have sailed largely empty.

Carrier profits have been hurt by an oversupply of big ships in the Asia-Europe trade, but Skou said a shift in Asia-to-U.S. East Coast routings to Suez Canal transit from the Panama Canal is providing a relief valve.

Just five years ago, 90 percent of Asia-U.S. East Coast routings were via Panama. That ratio has dropped to 60-40 as carriers have deployed larger, more efficient ocean shipping vessels from Asia-Europe routes.

Vessels bumped from Asia-Europe are being shifted to other routes, where they’re displacing smaller, less-efficient ships that are being returned to non-operating owners or sent to the scrapyard, he said.

“This trend, in my view, is going to continue,” Skou said. In addition to rising bunker costs, carriers’ Panama Canal tolls for Panamax container ships have risen to $450,000 from about $250,000 since 2006.

Maersk plans to take delivery this year of five of 20 Triple E ships, which will have nominal capacity of 18,000 TEUs each, but those ocean shipping vessels won’t be fully deployed until 2014. He reiterated that Maersk would keep its capacity in line with market demand in Asia-Europe, where the big ships will be used.

Trans-Pacific rates being negotiated this spring “will be higher this year than last year,” Skou said. He said Asia-U.S. rates have been essentially flat and that carrier margins on earnings before interest and tax have averaged just 1 percent since 2006, a situation he called unsustainable.

He said Maersk is “fairly optimistic” about growth of the U.S. market. He cited recovery of the housing industry and upward trends in other economic indicators. Europe’s economy remains sluggish, but Skou said carriers must cope with it.

It’s unrealistic to expect container market growth to return to the nearly 10 percent annual average it enjoyed between the mid-1970s and 2008. Carriers must recognize that and deal with it, he said.

Skou used his TPM speech to announce eight customer care targets that Maersk is unveiling as a result of meetings with 1,000 customers who said their advice to the carrier was “don’t try to be different, just try to be good.”

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Maritime News›Container Lines›Maersk Line

LONG BEACH, Calif. — Container ship lines can improve on last year’s results if they continue to trim costs and control capacity, Maersk Line CEO Soren Skou said in the keynote speech to the JOC’s 13th annual TPM Conference.

Skou said global vessel capacity is expected to rise 10 to 11 percent this year while demand rises only 4 to 5 percent. He said, though, that the gap could be bridged by scrapping, idling and slow-steaming of vessels.

“These are the three levers we can use,” he said. “We have to be able to live in a world of overcapacity.”

Maersk posted operating profit of $461 million last year, a turnaround from a $553 million loss a year earlier, as revenue grew 8 percent to $27.1 billion.

Skou said 2013 presents container lines with a bigger challenge, but that the industry is becoming “smarter” about matching capacity with demand.

He noted that carriers skipped 31 sailings totaling 182,000 20-foot-equivalent units during the recent Chinese New Year, when ships otherwise would have sailed largely empty.

Carrier profits have been hurt by an oversupply of big ships in the Asia-Europe trade, but Skou said a shift in Asia-to-U.S. East Coast routings to Suez Canal transit from the Panama Canal is providing a relief valve.

Just five years ago, 90 percent of Asia-U.S. East Coast routings were via Panama. That ratio has dropped to 60-40 as carriers have deployed larger, more efficient ships from Asia-Europe routes.

Vessels bumped from Asia-Europe are being shifted to other routes, where they’re displacing smaller, less-efficient ships that are being returned to non-operating owners or sent to the scrapyard, he said.

“This trend, in my view, is going to continue,” Skou said. In addition to rising bunker costs, carriers’ Panama Canal tolls for Panamax container ships have risen to  $450,000 from about $250,000 since 2006.

Maersk plans to take delivery this year of five of 20 Triple E ships, which will have nominal capacity of 18,000 TEUs each, but those vessels won’t be fully deployed until 2014. He reiterated that Maersk would keep its capacity in line with market demand in Asia-Europe, where the big ships will be used.

Trans-Pacific rates being negotiated this spring “will be higher this year than last year,” Skou said. He said Asia-U.S. rates have been essentially flat and that carrier margins on earnings before interest and tax have averaged just 1 percent since 2006, a situation he called unsustainable.

He said Maersk is “fairly optimistic” about growth of the U.S. market. He cited recovery of the housing industry and upward trends in other economic indicators. Europe’s economy remains sluggish, but Skou said carriers must cope with it.

It’s unrealistic to expect container market growth to return to the nearly 10 percent annual average it enjoyed between the mid-1970s and 2008. Carriers must recognize that and deal with it, he said.

Skou used his TPM speech to announce eight customer care targets that Maersk is unveiling as a result of meetings with 1,000 customers who said their advice to the carrier was “don’t try to be different, just try to be good.”

U.S. importers face severe delays in getting their cargo cleared at major seaports and at the Canadian and Mexican borders because federal sequestration will reduce Customs and Border Protection manpower.

Container examinations at seaports could take an extra five days or more, and the agency warns of  “significant daily backups for truck shipments at land ports.” Importers that are members of trusted trade programs such as the Customs-Trade Partnership Against Terrorism and Free and Secure Trade can expect their shipments to clear faster. 

Because of the automatic $85 billion worth of federal budget cuts that took effect Friday, Customs will furlough workers, reduce overtime and hold off on hiring, resulting in the loss of several thousand of workers at ports of entry, said David Aguilar, head of the agency, in a March 2 letter to shippers. The agency’s budget will be cut by about 5 percent, or $512 million, according to the latest White House projections.

“Our security efforts will remain our highest priority. We will not allow degradation of our primary anti-terrorism mission,” Aguilar wrote. “We will prioritize core processing and facilitation operations for both travelers and cargo.”

Thomas Barnes, president of Con-Way Mulitmodal, said on Friday that Customs clearance at the Mexican border hadn’t slowed ahead of sequestration and the company was monitoring the situation to best route shippers’ cargo. Roughly 35 percent of Con-way’s truckload business originates from or is destined to Mexico. The slower waits at the border will likely spur shippers to shift more loads on the expanded intermadal shipping networks. Barnes described the Customs process at the U.S.-Mexico as “status quo” with some shipments taking a day or two to clear.

“I think the system needs a deep evaluation and overhaul,” he said. “The Customs process lacks the sophistication needed, and it’s going to be even more important to improve it as trade grows.”

The sequestration could also hamper the agency’s implementation of the Automated Commercial Environment, a long-delayed cargo processing system. Gaining more funding in the fiscal 2014 budget is key to finishing up the system that acts an umbrella for all Customs’ communications with importers, brokers and exporters. The federal sequestration could also slow the momentum of the Beyond the Border Initiative, an effort by U.S. and Canada to speed the movement of goods and people across the border.

The anticipated slowdown in processing cross-border shipments comes as U.S. trade with its neighbors, particularly Mexico, experiences healthy growth. U.S. trade growth with its North American Free Trade Agreement partners in December slipped 3.2 percent year-over-year to $71.9 billion, largely because a decline in the expansion of truck and pipeline shipments. NAFTA Trade ended the year up 6.2 percent from 2011, according to the Bureau of Transportation Statistics.

Contact Mark Szakonyi at mszakonyi@joc.com and follow him at twitter.com/Szakonyi_JOC.

Analysts are hopeful that trade between Japan and China will improve gradually this year after a 2012 slump made far more painful by a territorial dispute over a group of islands in the East China Sea.

Yet some fear the tension between China and Japan, two countries with a long history of antagonism and grievances, instead could deteriorate as foreign policy hawks enflame nationalist sentiment in both countries.

War is now a real possibility and could quickly turn pan-Pacific, given the United States’ obligation to aid Japan, some doomsayers warn. That could devastate international trade news and economic growth.

Japan’s nationalization of the Senkaku islets last September sparked furious protests in China — which claims the islands as its own and calls them Diaoyu — as well as boycotts of Japanese products and attacks on Japanese-owned businesses.

Complete coverage of trans-Pacific maritime trade

Sales by Japan’s best-known companies screeched to a halt in one of the country’s largest overseas markets, giving an already poor year for exports an even more downtrodden hue.

Trade between the two countries fell 3.9 percent in 2012 from a year earlier to $329 billion, the first decline in three years, according to figures from China’s Customs Administration. Chinese imports of Japanese products fell 8.6 percent year-over-year, with the decline especially steep as the Senkaku-Diaoyu dispute reached fever pitch in the final quarter.

Flights that were canceled between the two countries have largely resumed, and some forwarders report shipment volumes by air and sea have recovered. There are encouraging signs that trade and trading relations are improving — sales by Japanese automakers rose in the latter months of last year, for example. But the rhetoric between the two countries’ politicians is hitting new heights, and that’s now being joined by military might.

In a January editorial, The Economist warned that China and Japan were “sliding toward war” as military maneuvers intensified. Fighter jets were deployed over the islands in January, and both sides have insisted they will not shy away from firing the first shot. The Chinese Navy also admitted targeting a Japanese warship with its weapons radar.

The territorial dispute, which hit the financial figures of major Japanese automakers and electronics companies last year, already is prompting many Japanese companies to reduce their reliance on Chinese factories in a bid to reduce risk. Japanese expansions increasingly are focusing on Southeast Asia, although many companies have little option but to try to secure sales in Asia’s biggest and fastest-growing market.

Forwarders paint a mixed picture. Henry Schmidl, director of ocean freight for Hong Kong and South China at Schenker International, said political issues between China and Japan might have had some negative impact last year. “However, looking at our performance, we actually cannot confirm that,” he said. “Our volumes to Japan have increased substantially with double-digit growth.”

Claus Schensema, managing director of GAC Forwarding & Shipping (Shanghai), said trade between China and Japan was down, but he’s optimistic of a rebound in the second quarter.

The dispute and subsequent trade downturn with China is another burden for Japan’s ailing economy, which registered a record high trade deficit in 2012. Total Japanese exports fell for seven consecutive months in 2012 and shipments slumped 5.8 percent year-over-year in December. This further damaged a Japanese economy already struggling with the strength of the yen and weak European demand that have strangled exports.

Several analysts predict that Japan, with a new government promising trade aid and monetary easing, will experience an export boost this year. That would help shrink a trade deficit exacerbated in 2012 by rising energy imports after the closure of numerous nuclear-powered electricity generators in the aftermath of the March 2011 earthquake and tsunami. Any further protests against Japanese products or a further deterioration in political relations with China, however, could snuff out a recovery before it gets started.

Henriette Hallberg Thygesen, CEO of Damco North Asia, said the Copenhagen-based logistics provider’s cargoes have largely followed seasonal trends in recent months. She’s hopeful the mutual economic benefits of good relations between Japan and China override nationalist sentiment.

“The Japanese government recently rolled out its monetary easing, expecting to further weaken the yen,” she said. “This makes Japanese products more competitive in international markets but, at the same time, makes Japanese investments overseas more costly. The net effect remains to be seen.”

China is engaging with Japan and South Korea on a possible free trade agreement, she noted, with the last meeting in November. “We are positive on overall trade development in North Asia,” Thygesen said.

The future of China-Japan trade, and the general well-being of the region and the global economy, would benefit from a widening of such talks to reduce tensions and help calmer heads focus on the long-term benefits of good relations, rather than the short-term gains of populist nationalism.  

Contact Mike King at Michael@borderline.eu.com.

When Maersk Line deploys the first of its colossal Triple E container vessels later this year, the world’s largest container carrier won’t just make history. It also will set off a chain of events that will ripple throughout the shipping world, and especially in the trans-Pacific.

In many ways, those ripples already are making a wake for shippers, other carriers, terminal operators and Maersk itself as the industry prepares for an onslaught of new capacity this year, led by a new class of mega-ships.

For carriers, that means cascading vessels capable of carrying 10,000 20-foot-equivalent container units onto the trans-Pacific or through the Suez Canal from the Asia-Europe trades, where the new class of mega-ships will flow. It means suspending or streamlining some services and further slow-steaming ships to manage capacity so rates don’t plummet.

For shippers, it means managing their supply chains so they don’t get caught short on inventory, and wrestling with longer sailing schedules and turnaround times.

For ports and terminal operators, it means a new emphasis on productivity to get ships in and out quickly, so they’re back on the water where they’re making money for carriers.

As for the Triple Es themselves, they come with a $190 million price-tag each and, at 18,000 TEUs, will be capable of carrying 12.5 percent more cargo than the next biggest vessels afloat — CMA CGM’s 16,000-TEU ships. At nearly 1,300 feet long — about a quarter-mile — and nearly 200 feet wide, they’ll be the largest container ships and the biggest vessels of any type plying the world’s oceans.

Maersk is scheduled to take delivery of 10 of the vessels by 2015, but canceled options for another 10 Triple Es last year because of the weak outlook in the Asia-Europe trades, where the vessels will be deployed. It’s expected to take delivery of the first two Triple Es this year.

The introduction of the Triple E is part of an industrywide bump in capacity increasingly found on ever-larger vessels. Alphaliner expects global fleet capacity to increase 8 percent this year after a 6 increase in 2012. And, in its latest projections, the research analyst expects ships capable of carrying 10,000 TEUs or more to account for 18 percent of the global fleet by the end of 2015, up from 6 percent in December 2010.

Maersk believes the Triple E’s unique design will generate substantial operational and competitive benefits. Indeed, the “Triple E” name is derived from the economy of scale, energy efficiency and environmental improvements the vessels will offer. 

From a price-point perspective, the ships will offer Maersk a significant cost advantage, according to Thomas Knudsen, the carrier’s Asia Pacific CEO. “This is an industry still doing relatively poorly,” he said. “The average industry return on invested capital remains low and not at a long-term sustainable level. A strong cost base is essential these days. That’s the main thing. The vessels will give us lower slot costs because fuel is our biggest expense.”

The Triple E boasts an array of fuel-efficient features that will allow it to produce 50 percent less carbon dioxide than the industry average.

With a top speed of 23 knots, less than the 25-knot top speed common on the previous generation of container vessels, the Triple E also is designed for slow-steaming.

An expanded inside cavity and U-shape hull provides for 23 rows of containers across, while the navigation bridge and accommodation for up to 34 people has been moved forward, and the engine room and chimneys back, to create extra space.

The ships are outfitted with two ultra-long-stroke engines that turn two propellers designed to optimize hull and bow forms, plus an advanced waste heat recovery system that captures and reuses energy from the engine’s exhaust to provide extra propulsion and reduced fuel consumption.

Where the vessels will call is undecided, but container terminal operators are gearing up to handle the new goliaths of the sea.

“We are working on a deployment plan on how we will introduce the Triple E vessels in our network, but we are constantly adjusting this to ensure that we have a cost-efficient network to serve our customers in a competitive manner,” Knudsen said. “We need to remain agile to grow with the market. The idea with the Triple E vessels is to deploy them where they make most sense from a business point of view. We will deploy them in Asia-Europe where we have the biggest market share.”

He added that the vessels would not be used for a market share grab. “We need to ensure we’re profitable; we want to maintain market share, but we’re not using the Triple E to increase it. We want to ensure sustainable financial performance.”

The carrier in February reported 2012 operating profit of $461 million, compared with a $553 million loss in 2011. It attributed the turnaround to higher freight rates across its network and lower operating costs.

The first issue for ports receiving the Triple E vessels will be the size of cranes used to load and unload them. The greater outreach required to service the ship’s extra row of containers will mean longer booms. The boom also must be located at a greater height because of the height of the ship’s container stacks, which also creates a number of new stresses, said Ross Clarke, head of design and innovation at APM Terminals, a Maersk sister company in the A.P. Moller - Maersk Group.

“The wind forces on the crane will be higher, which has an impact on wheel loads,” he said. “So ports will study if their wharfs can take the extra loads these bigger cranes generate.”

Of APMT’s facilities, Clarke said new facilities at the Jade Waser Port facility in Wilhelmshaven, Germany, and the company’s new automated Maasvlakte II Terminal in Rotterdam will be have cranes and support superstructure able to handle the ships when the terminals open next year. In Asia, APMT’s Tanjung Pelepas hub in Malaysia is building two new berths that will be Triple E-capable when completed in mid-2014.

“Our in-house engineers came up with a crane spec for suppliers to quote against, so they can verify they can build to our requirements,” Clarke said. “As Triple E cranes are heavier than the largest cranes in use today, we needed to know from suppliers the expected weights of the cranes so we can see whether existing wharf structures in some terminals will be capable of supporting them.”

Complete coverage of trans-Pacific maritime trade

Crane weight hasn’t been a major issue in terms of wharf strength, Clarke said. But with the Triple E, the ships are so big and the cranes so heavy, that the wharf structure in some locations is reaching its design limit. “We have spent a lot of time, energy and money checking the way wharfs have been constructed, looking back over design criteria to see if they can take a standard design Triple E crane, or if we need to make it lightweight, which usually costs a bit more,” he said. “But taking weight out of the crane is easier than strengthening an existing wharf.

“For existing terminals, we also need to check we have sufficiently strong support superstructure such as the bollards that the ship will tie up to,” Clarke said. “These ships have more wind area because they will have high container stacks on deck. They need a sufficient number and strength of bollards as these ships are bigger and apply more load than was contemplated when many ports were originally designed.

“The fenders which cushion the ship as it comes alongside the wharf also need to be able to absorb more energy as these are the biggest ships afloat,” Clarke said.

APMT has been liaising with Maersk for more than a year to pin down the precise terminal call requirements of the Triple E, but Clarke said that for competitive reasons it was hard for the carrier to be specific about exactly what its port rotation will be. “Lines like to keep choices open,” he said. “Some of the investments are significant for us and our competitors. These are the only ships of this size, so an operator will be reluctant to invest heavily for a ship if it doesn’t then call. Nobody wants equipment that’s bigger than required, so obviously we are trying to get full confirmation before we invest.

“There will be the initial ports of call and then secondary additions later,” Clarke added. “If we need to invest, we will.”

For the landside logistics in Europe, the key to getting the extra boxes off the berth will be maximizing the use of rail. “We’d also like to see truck receivals and deliveries spread across the entire week and day to avoid unsustainable peak demand,” he said. “We will need to use off-peak times so there could be some logistics players that need to consider operating different hours than they do now.”  

Carriers in the eastbound Pacific look to 2013 as a year in which they will return to profitability. They also intend to avoid the extreme rate volatility that defined their relationship with customers last year.

This optimistic scenario could play out if carriers’ performance in January sets the tone for the rest of the year, said Brian Conrad, executive administrator of the carrier discussion group known as the Transpacific Stabilization Agreement.

“The signs are more positive than last year,” Conrad told the OrangeCounty chapter of Women in International Trade Thursday in Newport Beach, Calif.

The liner industry lost money in 2011. Most carriers last year had a strong third quarter, but after a week fourth quarter they ended 2012 with a flat to slightly negative bottom line. January, however, was a good month, especially in the eastbound Pacific.

Buoyed by strong cargo loads in the month leading up to Chinese New Year, carriers operated with vessel utilization rates in the mid-90s. Thanks to a rate increase in January that pretty much stuck, freight rates approached the level that could be considered compensatory, Conrad said.

Complete coverage of trans-Pacific maritime trade

Today’s environment is quite different from the conditions that existed in early 2012. Carriers were coming off of a disastrous fourth quarter of 2011, when freight rates were “significantly depressed — well below compensatory,” he said.

Carriers last spring signed annual service contracts with beneficial cargo owners that locked in those depressed rates for the coming year. In order to keep from going under, carriers implemented a half-dozen general rate increases or surcharges that were paid primarily by smaller shippers and cargo consolidators. This caused friction between carriers and many of their customers.

The strategy this year is to sign BCOs to annual service contracts at compensatory rate levels and thereby avoid the volatility experienced last year, Conrad said. Carriers might be able to return to the traditional pattern of implementing a general rate increase in contracts signed in May, and a peak-season surcharge in the busy summer-fall period.

However, in order to do this, carriers will have to demonstrate strong resolve during the normal ebbs and flows of the trade cycle, Conrad said. The first test is occurring now, as cargo volumes fall off dramatically while factories in Asia are shut down for the Chinese New Year celebration.

Vessel utilization rates in the coming weeks will most likely drop into the 80s before climbing again in March, Conrad said. During the next few weeks carriers will engage in “void sailings,” in which they cancel some voyages due to a lack of cargo.

Carriers will also grapple with a projected increase in global vessel capacity of 8.9 percent this year. By contrast, demand in the eastbound Pacific is expected to increase 3 to 5 percent over 2012. It is not known what the hike in capacity will be in the Pacific, although capacity is likely to increase to some extent, Conrad said.

Weekly market share between the U.S. West Coast and East and Gulf Coasts in recent years has settled in around 70 percent to the West Coast. Average weekly volumes are 85,000 40-foot containers to the West Coast and 35,000 FEUs to the East and Gulf Coasts, Conrad said.

Equipment availability could be an issue at busy times of the year, as the production of new containers dropped in 2012 to 3.1 million units from 3.37 million units in 2011, he said. The cost of new containers increased from $3,850 per unit at the beginning of 2012 to $4,100 in December. That compares to $1,700 per unit five years ago.

If carriers in 2013 price for financial stability rather than market share, they can look forward optimistically to 2014 and beyond, Conrad said. New vessel deliveries will drop off sharply next year and will continue at a low level in 2015, allowing time for supply and demand to balance out, he said.

In his State of the Union speech, President Obama said the United States will invest more in transportation infrastructure, but he expects the private sector to bring the cash. House Transportation and Infrastructure Committee members the next day recoiled from testifying panelists’ suggestions that the most credible funding options include politically unpopular words such as “tax” and “toll.”

Transportation advocates could be forgiven for thinking they stepped into a time warp back to 2012 when Congress barely irked out a two-year surface transportation bill, or the years when President Bush pitched public-private partnerships as a solution.  

But it’s not all déjà vu. Unlike his predecessor, new T&I Chair Bill Shuster, R-Pa., hasn’t entirely ruled out indexing the federal fuels tax to inflation or raising it. Though politically unpopular for Congress and the president, hiking the fuels tax for the first time in two decades appears to be the only way to maintain surface transportation spending in the short-term. More fuel-efficient vehicles are generating less revenue for the Highway Trust Fund, the main engine for highway and road spending, while the cost of maintaining and expanding the national network rises.

The HTF will face a more than $20 billion shortfall when the current bill, known as MAP-21 (Moving Ahead for Progress in the 21st Century), expires at the end of September 2014. Using tricky accounting, or budget offsets, won’t plug the hole because “we’ve scooped all the nickels and dimes from the sofa cushion to get a two-year MAP-21,” said Susan Binder, senior associate at Cambridge Systematics, a transportation consulting firm.

Tapping the Treasury to plug the shortfall, as has been done in the past, might not be an option because of the tight fiscal environment. And taxing drivers by how far they travel — a vehicle mileage tax — isn’t a credible short-term solution, either.

Other proposals include tying the production of domestic energy to infrastructure spending and bonding a slight increase in the fuel tax to gain a bigger bang. Meanwhile, the threat of the sequestration is sapping some legislators’ attention, and even if the next wave of cuts is avoided or blunted, other fiscal cliffs, ravines and gorges await.  

Encouragingly, Shuster has put all options on the table when it comes to boosting highway funding, said Joshua Schank, president and CEO of the Eno Center for Transportation, a nonpartisan think tank. That’s a departure from former T&I Committee Chairman John Mica’s steadfast rejection of a gas tax increase.

That openness and Shuster’s belief that providing transportation infrastructure is something fiscal conservatives should embrace aren’t the only things suggesting the buildup to the next surface transportation bill could be different this time around.

“Shuster is a much more powerful transportation advocate than Mica,” Schank said. “(Shuster) has a better connection to Republican leadership, and his father (Bud Shuster) used to head the committee.”

Despite its unpopularity within the Beltway, the idea of raising taxes — whether on fuel or sales — to pay for infrastructure is gaining force across the nation. Lawmakers from Virginia, Maryland, Nevada and others states are taking different approaches, but the onus is the same: They need more help from Uncle Sam to maintain their networks, and they aren’t receiving it.

The private sector is also willing to pay higher user fees to fund transportation infrastructure, U.S. Chamber of Commerce President and CEO Tom Donohue said last month at the group’s first annual Transportation and Infrastructure Summit in Washington. He reiterated his support for phasing in modest increases to the federal gas and diesel taxes —18.4 cents and 24.4 cents per gallon, respectively — and pegging the tax to inflation to buy the nation more time to find a new way to pay for highway and road construction.

“Shippers are for it. Truckers are for it. Simpson-Bowles was for it ... The Chamber is for it,” he said.

Donohue’s insistence that the fuel tax is a user fee for access to U.S. roads rather than a true tax drew a sharp rebuke from Mica, suggesting old opposition dies hard. The Florida congressman in a statement accused Donohue, the head of the most powerful U.S. business lobby, of “backsliding” into a myopic tax and spend agenda” after he supported raising the fuel tax at the T&I committee’s first hearing of the year.

Aside from finding more revenue, Shuster also has to walk a thin line in balancing the federal role in allocating funds to states but also giving them enough autonomy when it comes to deciding how federal dollars are spent. Giving states wider latitude to raise tolls on roads appears to be gaining support and so is shifting the Department of Transportation’s role from big brother to more of a project adviser. Concurrently, however, the federal government wants more states to create freight plans and fit those into the national scheme, which is still being formed.

Those looking for Obama to transform his support of infrastructure into a plan with a funding solution are likely to be disappointed. The president’s new Fix it First program will commit $40 billion toward projects most needing repair.

The tact of bringing highway, roads, bridges and airports up to standard instead of just taking on new projects is admirable. What is less so is Obama’s means of paying for the upgrades. His plan to use $10 billion to create a national infrastructure bank, reduce red tape to speed up construction and boost bonding capacity to seek more private capital won’t fix the short-term funding crunch.

The sliver of goods news is that the unlikely pair of Obama and Donohue is in agreement that private capital needs to be tapped more. The private sector is ready to unleash roughly a quarter of a trillion dollars for U.S. infrastructure, but too few state and local officials know how to get to the PPP table. Donohue called on all states to pass legislation allowing public-private partnerships by the end of next year.

But Shuster and Congress will need more money for roads, highways and bridges long before then, and there still needs to be a steady public funding stream for investors to latch onto. Sound familiar?

Whether or not the so-called sequestration takes effect March 1, the message to the trade and transportation community is clear: Expect more bumps and prepare for cuts. The nation’s fiscal tightening threatens not only freight-related transportation programs but also general commerce, particularly shippers and carriers involved in military contracting.

Even if Congress blunts or pushes back $85 billion in federal spending cuts, fiscal tightening will still be needed in the coming years. Increased tax revenue from a recovering economy won’t offset expanding entitlements programs such as Medicare and Medicaid, and Congress and the Obama administration have shown little appetite for a grand deficit reduction deal.

However Congress handles the most immediate deadline, the potential impact of the first wave of a $1.2 trillion in total cuts over the next 10 years shows just how intertwined business will be to the federal government’s inaction. J.P. Morgan expects U.S. economic output growth to shrink to 1.9 percent from 2.1 percent if the $85 billion worth of cuts take effect, according to reports.

Federal programs that directly and indirectly affect transportation face more than $1.7 billion in budget cuts, including $41 million less for the Transportation Investment Generating Economic Recovery program (TIGER), according to a White House report released in September. That estimate doesn’t include the more than $600 million in cuts threatening the Federal Aviation Administration, which would lead to furloughing “a large number of air traffic controllers and technicians,” Department of Transportation Secretary Ray LaHood wrote in a Feb. 11 letter to the Senate Appropriations Committee.

“All of this means a less efficient and less convenient air travel service for the American traveling public, as well as impacts to our economy,” LaHood wrote. “Civil aviation contributes 10 million jobs and $1.3 trillion annually to the U.S. economy, and sequestration places this contribution in jeopardy."

Transportation trust funds are exempt from sequestration cuts, but general fund injections into them aren’t. General payments into the Federal Highway Administration’s trust fund, for example, would be reduced 7.1 percent, or $471 million. And the Army Corps of Engineers faces an 8.2 percent or $150 million cut that would wipe out $72 million from the Harbor Maintenance Trust Fund and $6 million from the Inland Waterways Trust Fund. Other major cuts would include a $10 million loss of freight differential grants for U.S.-flag ocean carriers and $2 million less for Surface Transportation Board, the regulating agency of the railroads, according to the White House report. 

TNT Express’s disappointing fourth quarter results revealed little about the future strategic direction the company will take in the aftermath of UPS’s abandonment of its $6.9 billion bid for the Netherlands-based integrator in January.

The deal’s collapse, in the face of stern opposition from the European Commission, punctured UPS’s European expansion efforts and proved a boon to rivals DHL and FedEX.

But it also leaves TNT in a state of some disarray. CEO Marie-Christine Lombard left the company for Geodis in September on the assumption the UPS deal would be pushed through, leaving Bernard Bot to serve as interim CEO. TNT’s stock price has plunged, and the company has been left scrambling to retain customers, investors and employees after a year of uncertainty and distraction.

An executive shakeup could be part of the “profit improvement plan” due to be announced on March 25 when TNT has promised to reveal how it will recover from the UPS debacle and cope with the “challenging” trading conditions it expects to face over the rest of 2013.

Mark McVicar, head of transportation research for Europe, the Middle East and Africa at investment bank Nomura, said the collapse of the UPS merger would force TNT to rationalize its global operations to address poor profitability. Any potential buyers would result in the divestment of non-core assets overseas, particularly in domestic markets where TNT has struggled to make its mark and that have frequently proven incompatible with its premium international services.

There is a precedent for this strategy in India. TNT in late 2011 sold its Indian domestic business to India Equity Partners, which it then agreed to use as its preferred partner for domestic road delivery. The deal was proof positive that TNT’s efforts to turn itself into a truly global express operator had come unstuck — the sale came only five years after TNT had moved into the India market with the purchase of ARC India, which operated a road network under the trade name Speedage Express Cargo Services.

TNT’s Latin American delivery business looks set to be the first on the auction block with the company still struggling to push its Brazil operation into the black. TNT’s latest fourth quarter financial statement included the admission that divestment opportunities for Brazil are being pursued. The company lost 148 million euros ($197.6 million) in the quarter, down from 173 million euros a year earlier.

The company’s Chinese domestic delivery business is also something of a lame duck, and an expensive one at that. TNT completed the acquisition of domestic freight and parcel operator Hoau in 2007 amid great fanfare about the 1,100 depots, 56 hubs and 3,000 vehicles it added to the integrator’s Chinese business. Since then, losses have accumulated rapidly, with a goodwill impairment of 75 million euro  ($100 million) attributed to Hoau in TNT’s fourth quarter accounts.

“The Chinese domestic business has been looking for a partner/buyer for almost a year now,” McVicar said.

Bot said the outcome of the divestment process for the company’s China domestic business would be revealed this quarter. Some believe parts or even the entire Hoau business could be closed, despite the massive capital loss this would represent.

“TNT Express’s strengths are the foundation of the strategy update that we are currently undertaking,” Bot said in a statement issued with the company’s fourth quarter results. “There are many positive actions we can take to improve profitability and we look forward to providing a full update on 25 March 2013. Divestment opportunities for our domestic activities in Brazil and China are being secured. The outcome for China Domestic will soon be known.”

The jewels in TNT’s Asia-Pacific crown are a high-performing Australia parcels network, which operates almost autonomously and with limited interaction with the rest of the global TNT network, and its Asia Road Network, which links China to Southeast Asia via time-definite international road services.

Whether these assets will be deemed core or non-core remains to be seen. Some smart judges believe the way forward for TNT will be to use its international network to feed its dense European operation, reduce its multilayered management system to become more agile, and cut back on fixed costs where possible, not least in the operation of in-house freighters as air bridges.

But TNT’s global strategy shifts have consistently confounded analysts in recent years. Much rests on the March 25 grand plan.

When a labor dispute closed West Coast ports in 2002, the immediate economic impact was said to be $1 billion a day. When a strike idled 10 terminals at Los Angeles and Long Beach last fall, the hit to the economy was reported at $1 billion a day. And when the International Longshoreman Association threatened to strike container ports on the East and Gulf coasts, there were widespread warnings that it would cost the economy — you guessed it — $1 billion a day.

How accurate is that number? No one knows. Apparently, there’s been no study to quantify the likely impact of a Maine-to-Texas port shutdown, and some economists and analysts say the billion-a-day estimate is grossly inflated.

“It’s a made-up number, a statistical fiction,” said Jock O’Connell, international trade consultant at California-based Beacon Economics. “It’s a conveniently large, round number that people can grab onto. But when you start peeling the onion, it’s impossible to justify. It’s the equivalent of saying it’s a gazillion dollars. If you said a gazillion, people would laugh at you, but a billion sounds reasonable. The same billion-dollar figure is trotted out regardless of the time, place or duration of the strike.”

No one disputes that port shutdowns are costly and disruptive. Even the possibility of a strike requires companies to absorb unbudgeted inventory, transportation and other costs. Repeated ILA strike threats during the last six months have forced companies to implement costly contingency plans.

But calculating the impact to the overall economy is an inexact science.

The National Retail Federation and the National Association of Manufacturers are among organizations that have cited $1 billion per day as the likely impact of an East and Gulf Coast container port shutdown, and of the recent eight-day strike by the International Longshore & Warehouse Union Office Clerical Unit at Los Angeles-Long Beach.

Spokesmen said their estimates were based on the reported impact of the 2002 dispute that closed West Coast ports for 11 days over a 12-day period. “We believe that based on our communications with manufacturers who will be impacted by a port disruption, that the economy-wide impact of a strike this year would be similar,” said Jeff Ostermayer, a spokesman for the manufacturers’ association.

John C. Martin & Associates, a Lancaster, Pa., firm that has conducted numerous economic impact studies for ports, estimated the daily impact of the 2002 shutdown at just under $1 billion for the first five days, and more than $1.9 billion by the end of the dispute.

Martin’s report in 2002 was commissioned by the Pacific Maritime Association, which used the estimates in persuading the Bush administration to invoke the Taft-Hartley Act to halt the West Coast shutdown. The report indicated most economic costs would be indirect impacts farther up and down supply chains.

Other analysts offered widely varying estimates suggesting lower economic impact. The Center for American Progress, a nonpartisan Washington think tank, said the 2002 lockout was estimated to have cost the U.S. economy a total of $6.3 billion to $19.4 billion, “with the lower figure being most credible.”

Those are big numbers, especially to companies absorbing a share of the costs, but they’re a relatively tiny slice of U.S. GDP, which was estimated at $15.8 trillion last year. The Federal Reserve Bank of San Francisco said the 2002 shutdown was disruptive, but “had a limited impact on overall economic activity.”

The San Francisco Fed said the shutdown disrupted vessel traffic and increased shipping times and costs for weeks, but “did not stop the movement of goods into and out of the U.S. Businesses worked around the disruptions, in part by diverting cargo to other ports and by shifting to other modes of transportation.”

Other analysts noted that many companies devised workarounds that minimized losses, and that some of those losses were offset by gains elsewhere in the economy. Air freight providers, for example, enjoyed a surge in bookings during the 2002 dispute.

The Congressional Budget Office said in a 2006 report that a one-week shutdown of the ports of Los Angeles and Long Beach would cost the U.S. economy $65 million to $150 million a day, although the ports handled some $500 million worth of containerized imports a day. “The cost to the national economy of a disruption would reflect the losses of some firms and the gains of others,” the CBO report said.

A 2004 paper by Peter V. Hall, a professor at the University of Waterloo in Canada, said the high-end estimates of the 2002 West Coast shutdown’s impact “assumed away the possibility of short-run substitution for most imports. Or, in other words, they assumed that the ships carrying the cargo sank.”

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But except for cargoes such as perishable foodstuffs, most cargo affected by the port dispute was not a total loss. Shippers incurred higher costs, but most cargo eventually was delivered for use or sale, said Hall, who now is a professor at Simon Fraser University in Vancouver, British Columbia.

Alex Rosaen, director of public policy and economic analysis at Anderson Economic Group in East Lansing, Mich., said traditional port economic impact studies are useful for measuring direct economic impacts, but are less accurate in gauging indirect impacts farther up or down supply chains.

“The bigger you draw the circle of your geography and analysis, the harder it is to see big impacts,” Rosaen said. “One way to think about it is to ask, ‘Is there less work being done in the world? Is there a factory that’s idle that is not made up for by another factory working at higher capacity somewhere else?’ You have to consider that one factory’s shutdown may be another factory’s third shift.”

Shortly after the 2002 West Coast shutdown, Anderson estimated that economic damage from the disruption totaled $1.67 billion over 12 days.

The impact of a port work stoppage is affected by its timing and duration. There’s general agreement that the longer a strike lasts, the more far-reaching its impact. “A two-day strike is an irritant, with localized impact. A four-day strike becomes much more critical. After a week or two, costs go from arithmetical to geometric,” O’Connell said.

But those costs don’t increase in a straight line, O’Connell noted. If a work stoppage drags on, companies have more incentive to implement workarounds by switching ports or transportation modes, changing suppliers, shifting production or substituting goods. Each of these actions mitigates the overall economic impact.

Other variables include whether a work stoppage happens during a busy season, as the 2002 lockout did, and whether shippers had warnings of potential disruptions. O’Connell noted that shippers have known for months that the current East and Gulf Coast longshore contract negotiations would be difficult. “Any supply chain manager who would have been caught flatfooted by an ILA strike should have been fired,” he said.