Container shipping has a chance for a successful, renewed future despite the pandemic.
Within months of the start of the COVID-19 pandemic, it became clear that, in the face of the most sudden and severe collapse in volumes in history, the unprecedented response of container operators to reduce capacity and prevent rates from falling is a historic milestone that lays the foundation for a “new reality” of the industry. It’s just not yet clear what this new reality will look like.
However, if at the moment of greatest danger carriers were able to act effectively to protect their interests, then this year’s experience may well serve to set a precedent. For now, carriers have broken the self-destructive cycle of the decade following the financial crisis of 2008-2009, when carriers, lacking the leverage to influence supply and demand, resorted to cost-cutting factors such as building mega-container ships and running on small steam to conserve fuel. that benefited them, but not their clients.
On a basic level, the new reality means that future stakes will be higher and volatility reduced.
“For carriers, this means that they can finally count on reasonable profitability. From a shipper’s perspective, this leads to a higher degree of stability in terms of pricing and service offerings,” said Lars Jensen, CEO and Partner at SeaIntelligence Consulting. — The question is, do you (as a shipper) appreciate extremely low rates? If so, you will not be easy. But if you value a stable environment, that’s what you’ll get. After a period of instability that we all went through, stability in itself is a huge value.”
Some believe that price pressure will eventually rebound, but the magnitude of the change cannot be underestimated. The rising frequency of cargo flight cancellations over the past two years has been just a rehearsal for a wave of capacity cuts this year as carriers have responded to the COVID-19 crisis.
Through June 1, the three east-west alliances canceled a total of 126 flights between Asia and North America for August due to the impact of COVID-19 on demand and 94 Asia-Europe flights, according to Sea-Intelligence Maritime Analysis. Another 75 flights were canceled for September by the alliance of Hapag-Lloyd, Ocean Network Express, Yang Ming, HMM and the alliance of 2M Maersk Line and Mediterranean Shipping Co. (MSC).
Consolidation has halved the number of major container ship operators over the past five years and grouped the remaining lines into three ship-sharing alliances on trade routes between east and west, between Asia, North America and Europe.
“One of the key changes from 2010 is that we now have much higher flight frequencies,” said Jeremy Nixon, CEO of Ocean Network Express (ONE). “Containerships are bigger, there are fewer consortiums, but that allows us to operate a lot more flights a week and gives us a lot more room to change in terms of capacity management.”
The impact of the new situation on tariff changes is undeniable. According to DHL, as of early June, spot freight rates on the main sea trade routes were higher than a year earlier: Shanghai-Rotterdam – up 23%, Shanghai-Genoa – up 24%, Shanghai-Los Angeles – up by 45%, Shanghai-New York – an increase of 8%.“This growth has been achieved through the collective efforts of carriers refusing to repeat the mistakes of the past,” writes DHL in a June article titled “The New Reality for Container Shipping and Shipping Tariffs.”
According to Rahul Kapoor, vice president of IHS Markit and analyst at Bloomberg, if carriers are more disciplined about capacity and are generally in a stronger position financially, investments will be redirected and this is where their long-term impact will be felt.
“When everything returns to normal and the profitability of the carriers is restored, the funds will be directed to other tasks, not to the construction of ships,” Kapoor explained. — After the recovery period of 2009-2010, profits went to the construction of mega-container ships. I don’t think the same will happen now. Most likely, carriers will invest in technology and non-vessel vehicles.”
In recent years, even before the pandemic, Maersk drastically cut investment in new vessels, instead investing in its development as part of a strategy to reshape into a global container logistics integrator, as evidenced by the recent acquisitions of customs broker Vandegrift and warehousing company Performance Team. Increasing investment and growing technology expertise are enabling e-commerce tools not only from Maersk but also from Hapag-Lloyd, Zim Integrated Shipping Services and others to be deployed with long-term implications.
Ultimately, whatever shape the future of container shipping in the post-pandemic world takes, it could be very different from its recent past. But, thanks to the “new reality”, consolidation and new technologies, freight carriers can hope for a renaissance in the industry.
M&M Ukraine (head office in Kiev, subdivision in Boryspil and Odessa) successfully performs international sea freight container transportation in all promising and demanded world directions. “M&M Ukraine” provides high-quality and safe cargo transportation from European countries to Ukraine, from Ukraine to Europe, to China and to the USA.
Based on www.joc.com and open sources.