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Tag: CV International Inc.

Transportation 2023: MICHAEL W. COLEMAN

In addition to leading CV International, his family-owned freight logistics and transportation company, Coleman is a Virginia Port Authority commissioner and chairs the century-old Virginia Maritime Association.

He’s also a board member of the Hampton Roads Shipping Association and sits on the Virginia Economic Development Partnership’s Advisory Committee on International Trade. Coleman was appointed to the Virginia Board for Branch Pilots in 2019 and currently serves as its president, overseeing the licensing and regulation of harbor pilots in Virginia.

CV International has about 100 employees throughout the mid-Atlantic, including 55 in Virginia. It was established in 1984 by his father. Coleman was promoted to CEO in 2018. He received his bachelor’s degree from the University of Richmond and a law degree from Louisiana State University.

ONE THING I’D CHANGE ABOUT VIRGINIA: Virginia needs to figure out a way to quickly establish shovel-ready sites for economic development opportunities, particularly in the Hampton Roads area.

HOW I BALANCE WORK AND PERSONAL LIFE: International shipping is a 24/7/365 commitment. It is important for me to be intentional about spending time with family and friends. A balanced life makes for a more successful life, both personally and professionally.

New rules

In theory, the Ocean Shipping Reform Act (OSRA) would, among other things, help reduce inflation by adding transparency to container handling fees. In practice, though, it’s not that simple.

When President Joe Biden signed OSRA into law in June 2022, he touted it as a weapon against shipping costs that had soared during the pandemic. One of OSRA’s objectives was to give the Federal Maritime Commission more power over monitoring and investigating shipping practices. But almost a year later, experts say the law will have little, if any, impact on inflation.

“Most in Congress don’t really understand the shipping industry,” says Christine McDaniel, senior research fellow at the Mercatus Center, a market-oriented think tank based at George Mason University. “They saw rising prices during COVID and thought there must be collusion. But, in fact, it was supply and demand. There was a huge spike in demand that overwhelmed supply.”

Supply not meeting demand created numerous problems, including a shortage of semiconductor chips affecting electronics and automobiles. But most noticeably, it caused shipping rates to skyrocket. During the pandemic, the charge for shipping 40-foot containers from the West Coast to China jumped from around $1,400 to more than $20,000. The cost has since dropped back to about $1,500.

“OSRA will not impact the rates charged,” says Brian Whitlock, an analyst specializing in global logistics with Connecticut-based Gartner Consulting. “OSRA gives the Federal Maritime Commission the ability to enforce the reasonableness of how rates are charged. As a result, it will likely not have a material impact on inflation.”

Joe Harris, spokesman for the Port of Virginia, says OSRA “doesn’t have a lot of bearing on” the port.

“We do not set rates,” Harris explains. “Those contracts are negotiated between the ocean carrier and cargo owner. What is important to ports is vessel schedule. When the carriers get off schedule as badly as they did during the pandemic, it’s felt at the ports.”

Shippers haven’t felt the impact of OSRA yet because the industry is waiting on the Federal Maritime Commission to rule how the law will be practically implemented, says Mike Coleman, president and CEO of Norfolk-based logistics and shipping firms CV International Inc. and Capes Shipping Agencies.

“I do not expect any appreciable impact until the final rules are implemented by the FMC, though freight providers will be preparing in advance,” he says. “OSRA was born out of the pandemic and the challenges it presented in shipping, specifically regarding equipment availability and associated costs.”

A secondary objective of OSRA is to address the issue of shipping companies refusing agricultural cargo and instead sending empty containers to foreign ports, often China, to be filled and returned. Many shippers preferred to send empty containers to China, where they could be quickly loaded with more profitable, high-demand cargo. In one two-month span in late 2020, U.S. carriers rejected almost 200,000 containers, according to a CNBC report. Under OSRA, there is more pressure on shippers to accept containers for export when space is available.

“But again, that happened during COVID, when U.S. demand for imported goods increased sharply,” says McDaniel. “So those price hikes and practices were largely the market’s response to supply and demand.”

OSRA also shifts the burden of proof in disputes from the shippers to the carriers, “a huge benefit to shippers who did not file complaints in the past due to this burden,” says Whitlock.

But, he adds, the impact of that “will rest squarely on the FMC and how they define and enforce the new rules. For example, fining Hapag-Lloyd [AG] $2 million for unfair detention charges when their first quarter [earnings before interest and taxes] exceeded $4 billion is hardly going to make a dent in ocean carrier behavior.”

McDaniel is concerned about recent discussions involving the Federal Maritime Commission that would single out ocean carriers as “special” and not subject to general antitrust regulations.

“That worries me because the big competition principles should be the same across industries and sectors,” she says. “Carving out one industry as ‘special’ is dangerous.

“The shipping industry is vital. Don’t mess it up.”   

The ‘wrong inventory’

During the pandemic, consumers wanted things to make them feel comfortable at home — whether it was sweatpants, home décor or the latest fuzzy blanket. But as many workplaces have transitioned to hybrid or in-office work models and people are back to socializing outside the home, products that were over-ordered by companies during the pandemic are now piled in warehouses unused and unpurchased.

This “mispurchasing” of goods, as Rick Holden, vice president of business development and a corporate officer for Richmond-based Riverside Logistics, puts it, has led to a massive influx in warehouse inventory across the state. “This created a huge glut of inventory that we’re still working through,” Holden says. 

The vacancy rate for warehouses in the Hampton Roads region is less than 1%, says Trevor Dunlap, president of Chesapeake-based transportation and logistics companies Givens Transportation Inc. and Givens Inc. “Warehouses are full here locally in Virginia, but also across the country,” he says. “The vacancy rate in Hampton Roads is like 0.7%, so warehouses are super full.”

The Richmond market also saw a massive increase in warehouse inventory during the past couple of years. Richmond’s warehouses have traditionally been less than 40% full, but since the pandemic, they’ve jumped to 90% full, says James Durfee, vice president of business transformation at Riverside Logistics, a third-party logistics and supply chain management company.

“Today, we see evidence that the wrong stuff is sitting in the warehouses,” he says, referring to pandemic-popular items like leisure wear and furniture. “The turnover [rates] are a lot slower.”

Typically, a company will sell and restock inventory roughly every two months. Now, overstock may sit in warehouses for much longer, a phenomenon dubbed “pandemic hangover.”

Mike Coleman, president and CEO of Norfolk-based logistics and shipping firms CV International Inc. and Capes Shipping Agencies, also notes that there are still challenges with supply chain backlog.

“There’s still a lot of difficulty finding warehouse availability,” he confirms. “Many are full with excess inventory.”

The need is questionable

Some supply chain experts predict, though, that the issues with warehousing capacity won’t last.

“In my opinion, the glut of inventory in warehouses is temporary, not uniformly distributed across industries, and will be dealt with — worked off, sold on the discount market, etc. — relatively quickly,” says Barbara Hoopes, a professor and supply chain expert with Virginia Tech’s Pamplin School of Business.

This means that most companies won’t move to build more warehouse space to handle the current excess inventory but will rather turn to contracted or public warehouses — a warehouse that allows businesses to rent space to store their products — for shorter-term and more flexible space, Hoopes adds.

“This signals good news for third-party warehouse/distribution companies, whose services and capacity will continue to be in demand — especially regionally,” she says. “The third-party logistics industry will likely play an important role moving forward to absorb unpredictable demand and inventory levels.”

Holden also worries about building too much more warehouse space. After the glut of inventory clears out, warehouses will ultimately have excess space, he says. For right now, Riverside Logistics is being more careful about the clients it’s taking on — and has even had to sever ties with some customers as warehouses remain too full. 

“We’re much more selective on who we take. We’ve actually had to ask some clients to leave our space,” Durfee says. “The nature of the beast was that we were kidding each other that we’d be a good fit long term. It took us a while to internalize that across our management team because we had never done that before.”

The labor issue with warehouses

While inventory levels remain high in warehouses, so does the demand for labor. Talent in the supply chain industry as a whole has been scarce, particularly for warehouse workers and truckers. In fact, 73% of employers have had difficulty attracting warehouse talent, according to hourly worker staffing firm Instawork’s State of Warehouse Labor report for 2022.

In turn, some warehousing companies have implemented higher hourly rates. Warehouse workers prior to the pandemic made about $14 to $15 per hour, which has now risen closer to $20 per hour, Durfee says. Some logistics businesses are even taking a more serious look at warehouse automation to ease the pressure for hiring for jobs that are traditionally hard to fill, Hoopes says.

But just as inventory levels remain unpredictable for the future, so does the demand for logistics labor. 

“Yes, there may be some competition for warehouse workers at the moment,” Hoopes says, “but it’s hard to say if it will last very long in the face of prolonged uncertainty.”  

Choppy waters for ocean shipping

What a difference a year makes. In March 2022, ocean freight rates were at record highs, with capacity straining under the weight of historic U.S. import demand. High inventories and economic uncertainty prompted importers to pull back over the summer months, and volumes slowed.

A spectacular rate collapse in the ocean freight market from Asia to the U.S. followed; freight rates are now below pre-pandemic levels on many trades — even below ocean carrier break-even levels —  and import demand growth continues to slow.

Shippers and ocean carriers now find themselves in a familiar situation, reminiscent of the pre-2020 years marked by overcapacity and low rates that were favorable to shippers. The carriers, flush from the past two to three years of record profits, have new vessels on order that are expected to contribute to an overall net capacity increase of 8% to 9% globally and a continuation of overcapacity on most trades.

Within the past year, the Ocean Shipping Reform Act and consumer-focused positions taken by the Federal Maritime Commission have contributed to optimism among shippers; the current shipping environment seems, in many ways, more favorable to shippers than any in recent memory.

While the dynamic feels familiar, a variety of risks abound that define a new international shipping landscape. The impacts of COVID-19 disruptions — especially in China — and geopolitical concerns are prompting more shippers to diversify their sourcing where possible and consider near-shoring.

A long-awaited labor contract for U.S. West Coast ports has been under negotiation for a year, with no deal in sight; many shippers have shifted their routings to avoid West Coast uncertainty. Port congestion has improved significantly since volumes have slowed, but the pandemic volume surge revealed infrastructure vulnerabilities that threaten to disrupt supply chains in the future if left unaddressed. 

The world’s two largest ocean carriers, Maersk and MSC, announced in January they will wind down their alliance over the next two years, and changes to the other two main shipping alliances, both formed in 2017, are expected to follow. Dissolution of the alliances would likely lead to carrier consolidation in the coming years, meaning even less competition on the supply side. MSC, now the largest and fastest growing global carrier, is positioned to dominate. 

Diversification, always important, will play a critical role in the new landscape. Utilizing a variety of logistics providers, sourcing options and routing flexibility will be essential to maintaining a healthy, efficient supply chain. The past few years of supply chain extremes have proven that almost anything is possible and that long-term partnerships are still key to successful global trade.

Rachel Shames is vice president of pricing and procurement at CV International Inc., a freight forwarder, customs broker and non-vessel-operating common carrier headquartered in Norfolk.

CV International subsidiary acquires Ga. shipping company

Norfolk-based CV International Inc. subsidiary Capes Shipping Agencies announced Wednesday that it had acquired Savannah, Georgia-based Ryan Ship Services LLC.

Financial terms of the transaction were not disclosed.

“This merger will be a great fit for both of our companies, and the timing was perfect,” CVI President and CEO Mike Coleman said in a statement. “We have had a close working relationship with Ryan over the years and we share many of the same clients. … This will extend our own agency coverage further south.”

Ryan Ship Services is an independent shipping agency and freight forwarder. Drew Ryan founded Ryan Ship Services in 1999. Gene Meredith later joined Ryan as a partner. They will manage all operations in a new Capes branch office in Savannah. Capes will expand the Savannah team to support agency operations, documentation and customs brokerage services.

Ryan said in a statement, “This was exactly what we needed, and the timing was great. We have seen a lot of growth in our business over the last couple of years, and Capes is going to provide the scale we need to keep up.”

Founded in 1958, Capes Shipping Agencies provides vessel agency and cargo forwarding services in the U.S. The company offers port agency solutions along the East and Gulf coasts.

Commentary: Adjusting to a new shipping reality

Ocean shipping patterns established during the first year of the pandemic have taken root, and it’s time for shippers to adjust strategies for the long term.

That was the takeaway from the first in-person Trans-Pacific Maritime (TPM) Conference in three years, presented in Long Beach, California, in March by IHS Markit Ltd. (now S&P Global Inc.), traditionally the largest annual gathering of ocean shipping industry professionals in the U.S. It’s the same message carriers are communicating through this year’s contract negotiations.

U.S. import demand remains strong, and most retailers are forecasting higher volumes for 2022. Severe port and inland terminal congestion persists in the U.S. and abroad. Trucker, chassis and warehouse shortages plague shippers of all sizes. Effective ocean vessel capacity is restricted by carriers’ inability to maintain regular schedules in this highly congested market. West Coast port labor contract negotiations are ongoing, and there are concerns about a work slowdown that would exacerbate these challenges. Fuel prices are climbing, adding upward pressure to transportation rates that already are at record levels.

Also, there are signs that demand may slow this year. Between high inflation and expected spending shifts from goods to services as pandemic concerns ease, analysts are optimistic that there is some supply chain relief on the horizon.

Container carriers have new vessel deliveries planned for 2023-24, which will bring a healthy injection of ocean capacity to the market. There are more independent, niche carriers in the ocean market than there have been in years, translating to more competition and options for shippers. A new task force run by the Department of Justice and the Federal Maritime Commission, meanwhile, is monitoring and investigating claims of anticompetitive behavior and unreasonable pricing by ocean carriers.

However, the severity of congestion and shortages in the system, especially landside capacity, threatens to counterbalance a drop-off in demand. A looming deadline for new decarbonization initiatives, the International Maritime Organization 2023 rules set to lower emissions, is expected to force a portion of the existing global ocean capacity out of rotation next year.

Instability is widely expected to persist throughout 2022-23 and may well characterize the industry for the foreseeable future. Shippers are advised to plan and act now for the current market reality, not to wait for the tide to turn. The pendulum will swing eventually, but it’s highly unlikely to land at the far opposite end of the spectrum where the industry sat in the 2010s when shippers held all the leverage.

Carriers have dramatically shifted their approach to contracting over the last year. There is far less fixed-rate and space allocation in play; most freight will move on variable rates at spot at premium levels, translating to even less predictability for shippers. Carriers are reducing the size of long-term contracts and deselecting less desirable customers entirely. Shippers must position themselves as high quality partners — shippers of choice — and seek out arrangements that benefit both sides equally. A variety of long-term, well-nurtured relationships will be necessary to keep cargo moving; shippers must have a diverse port-folio of ocean carriers, forwarders and non-vessel operating common carriers (NVOCC); long-term and spot-rate agreements, and multiple trucker and warehouse partners.

The 2022 TPM conference theme, “Relationships Matter,” is critical advice for shippers navigating this new market. Those who embrace strategies that provide their companies with as much reliable logistics service as possible will prevail over those who prioritize chasing the lowest rate for short-term gains. Quality partnerships have never been more important to the execution of a successful supply chain. ν

Rachel Shames is director of pricing and procurement at CV International Inc., a freight forwarder, customs broker and non-vessel-operating common carrier headquartered in Norfolk.