Industry expert sees reasons to be hopeful that container shipping can weather 2020 and right itself from capacity glut.
Container shipping never seems to catch a tailwind. A glut of ships pushed rates below breakeven for most of the decade, prompting the industry to shrink from 20 players to eight in three major alliances. The Asia-to-Europe trade still faces a major capacity glut, keeping rates below operating costs. Overall trade growth is expected to slow this year and the switch to low-sulfur fuel still remains a question mark.
Despite all this one long-time industry observer, Lars Jensen of Seaintelligence Consulting, said container shipping is “not under threat.”
“This is a dynamic industry that is going to continue to provide a lot of good opportunities,” Jensen said.
He offered the views during the closing panel of IHS Markit’s TPM 2019 conference, a forum for carriers and shippers to negotiate rates for the coming year.
While it may seem a challenge for carriers to raise rates in an uncertain trade environment, Jensen said “strategically speaking, it’s not. It’s a tactical, practical challenge. If you don’t make money, absolutely, but it’s a symptom. It is not a key challenge in itself.”
The issue of paying for higher fuel prices come 2020 also hangs over contract negotiations, with fuel prices expected to rise $200 per metric ton, a nearly 50 percent increase from current levels.
But Jensen said the industry dealt with crude oil prices over $100 back in 2014 “and who paid for it five years ago? The shippers.” The move to online quotes might seem like a race to the bottom for freight rates, but Jensen said “shippers think about more than just the price in front of them.”
While some customers complain about the lack of accurate container tracking on the ocean, Jensen argues container tracking only reflects the legacy of a dismal customer service experience at ocean carriers. Carriers can reverse this course, potentially offering a premium service to shippers “Is it true that when you are shipping 25,000 containers, you want to know what every conceivable point in time where they are? Not really. They don’t trust their suppliers to tell them when something goes wrong, so they feel they need to have this insight so they themselves can identify when something goes wrong.“
Jensen said there are still too many container ships on the water currently, but it is climbing out of that glut with a more balanced market by 2020. Even though the capacity glut keeps freight rates low, the result is that shippers have less choice as carriers cut back weekly services. “Fewer services means more transshipment. That means higher costs for shippers,” Jensen said. But that allows carriers to introduce higher margin niche services on smaller trade lanes, Jensen said The move to consolidate the carriers through mergers and alliances may also have run its course, Jensen said, as rates continue to be volatile and competition authorities are unlikely to approve further deals. “This is the stable of global carriers for the next many years to come. They have reached a point where there’s not much more value in consolidating into further.”
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