Lines strive for the 'right sizing'

SHIPPING lines are streamlining organisation structures to achieve the right sizing to achieve economies of scale, says a Hongkong industry executive.

Orient Overseas Container Line (OOCL) general manager of quality assurance Stanley Shen said the industry trend was being followed by his company and several others.

''Shipping lines also recognise that any irresponsible expansion on their part will create a loss situation for people in the business,'' Mr Shen said.

OOCL and many other lines were aware of the need to cut down on cumbersome processing and adopt systems to help them achieve the right size.

He said OOCL had no immediate plans to expand its fleet due to the tight world economic situation.

Any deployment of large ships subscribed to the assumption that there was space requirement, and OOCL would undertake such deployment only if there was such a requirement, he said.

Mr Shen said OOCL had recorded 13 to 14 per cent growth within the Asia North America Eastbound Rate Agreement (ANERA) and 25 per cent growth on the Far East-Europe trade last year.

On the China market, Mr Shen predicted that in the next five years the whole coastal area of the mainland would grow as it was ripe for development following the economic progress of the southern areas.

The demand in the consumer market would increase tremendously, fuelling imports in addition to domestic manufacturing.

He explained that OOCL was interested in potential port development, warehousing and depot projects that would fit into the line's service requirements.

Regarding niche carriers, Mr Shen said their chances of survival was slim if they continued to operate within a small market and offered limited scope.

Usually these carriers, due to an imbalance of trade, may have to subsidise equipment repositioning from a surplus area to a deficit area, cutting into their profits, he said.

Such carriers might have a better chance of survival if they expanded their scope of services and enjoyed higher economies of scale.

For example, in the transatlantic trade a carrier operating only between the US and Europe may have to subsidise transportation of empty equipment from a surplus area to a deficit area, he said, adding that the line might end up losing money.

However, if a carrier traded in more than one major market it would operate more efficiently and achieve far better equipment utilisation.

Mr Shen said he was optimistic that the US economy was improving and expected better results this year, looking at it from the general trading pattern.

But he was not so optimistic about Germany and the rest of Europe as their economies were taking a downturn.