Spot rates in the trans-Pacific ocean trade continue to reach epic new heights, leading to talk of price gouging.
“Container lines have done well during the global pandemic, but are they profiteering from the crisis?” asked U.K.-based consultancy Drewry.
“Perversely, lines look set to make more money than they have in a long time,” Drewry continued. The practice of “blanking” (canceling) sailings “has paid off handsomely.”
“From a public-relations perspective, the optics of making big profits during a global crisis are not great” and will lead to “more animosity and accusations of profiteering,” said Drewry, adding that it “is inclined to give carriers the benefit of the doubt for now.”
The ultimate question is: Will trans-Pacific rates prompt action by the Federal Maritime Commission (FMC), the agency that oversees alliances?
To continue reading this article...
Already have an account? Sign In
Create a Free Account
No payment required
Robert Harper
Enterprise Logistics Intermodal Logistics, and SaaS Software, Together AS Partnership we can Maximizes Global Workforces by Visibility Management Performance Sustainability”ACTION” format_native(Logics);
Robert Harper
Innovation Supplychain, Enterprise Intermodal Logistics, and SaaS Software Company.Globally Marketing.
Robert Harper
Innovation Supplychain, an Economist Intermodal Logistics, and SaaS Software Company.Globally Marketing,
Gary Ferrulli
Niels Erich comments above are very much on the mark, but many other issues point to the absurdity that carriers are profiteering or gouging. Besides looking at spot rates of a few minutes ago, why not take a real business look at the container shipping industry? Look at returns over the last 10 years and see collective losses of over $30. Billion with one year of profit, all the rest losses. 2020 is still a work in progress but “experts” in April said the industry could lose $28. Billion, despite seeing first quarter results and at least one month of the second quarter. The same “experts” now say that the industry could make $9. Billion in 2020 – or lose $7. Billion, a mere $16. Billion swing. Do you need to be an expert to make those types of projections, or just using hyperbole to get quoted in industry publications?
Even looking at the most recent spot market rates, which of these experts tells us that spot market rates are not the primary driver of carrier revenues, but contracts are and those rates are hundreds of dollars below the spot rates. We didn’t get down to 4 major carriers globally (those with more than 2 million teus of capacity), or 3 major Alliances because of profiteering or gouging.
The major issue is that most shippers are shocked at not seeing more red numbers from carriers, they have seen it for ten years, and suddenly in 2020 there appears to be the second year of profits over what will be an 11 year span. The carriers have themselves to blame for those ten years of collectives losses, but they have apparently finally decided that long term viability and ability to provide services does depend on profitability – even a small one as will happen in 2020 (look at the rate of return, less than 3%).
Even the highly subsidized carriers are being disciplined in managing capacity to the markets – the global economy has them not deploying excess capacity which would drive rates down, along with the bottom lines. Several of them will still lose money while the truly for-profit companies will benefit from the discipline shown for nearly two years now.
History tells us that 2020 is an anomaly in many ways, carrier profitability is one of those anomalies. Profiteering and gouging are perceptions of those who have seen mostly large losses and are somehow convinced that the 2020 anomaly constitutes cause for alarm and concern, imaging one year profit in a row with the potential of a second year in 2021 being the cause.
Niels Erich
A helpful, balanced article. Blanked sailings are an inevitable tool at this point for carriers to individually adjust to market supply and demand in a targeted way without idling ships or eliminating routes that are both costly to restore later. A $2700 China-West Coast rate reflects heightened uncertainty in the COVID-19 environment. Inventories need to be replenished but follow-on business amid 11% US unemployment and 50,000 new cases per day is in no way assured. Where was Drewry when the same rates fell below $600 in 2016, leading to consolidation and the formation of alliances? Calling for “market discipline,” that’s where. Can Drewry somehow produce for regulators an optimal “reasonable” trans-Pacific rate for all carriers in a given market and point in time? For each individually? Didn’t think so.