In 2021, the three ocean shipping alliances, made up of the top nine largest ocean carriers, earned over $150 billion in profits.
Fast forward a year, and the landscape has become much more competitive with carriers that find themselves too heavy in a spot market concerned with falling spot rates. Even those protected lightly by higher contract rates still expect a lower demand for their contracted services in 2023.
Although, one maritime expert believes ocean pricing to shippers and profit to carriers will continue to see dramatic swings until a different method is put in place, one similar to the dynamic strategies adopted by the airline industry in the late 1970s.
In an interview with Shabsie Levy, founder and CEO of digital freight-forwarding platform Shifl, describes his outlook on global shipping rates and demand and, more notably, describes a less-volatile market driven by a proactive pricing strategy.
This question-and-answer interview was edited for clarity and length.
FREIGHTWAVES: What do you make of the current state of global shipping rates today?
LEVY: “This market reminds me a lot of 2008, where we experienced a similar situation in pricing. Now, container pricing did not go up to $20,000 like it had recently, but it went up a lot, and the market overreacted and capacity increased and volume dropped significantly.
“During these times, I like to compare the [global shipping] industry to a seesaw. It takes a lot of work to keep it leveled. Why has it become this way? Because it’s either going to be too much demand or too little demand.
“COVID-19 allowed the seesaw to significantly shift, and all of a sudden there was a lot of product yet no capacity. Now we are exiting out of that.
“While rates are relatively low from their peak, they are still higher, some almost doubling what they were prior to the pandemic.
“I don’t know what the new low is going to be. Prior to the pandemic, China to LA could have been done for $900-$1,000 [per forty-foot equivalent unit (FEU)], and at that amount is where carriers lose a lot of money.
“Both LA and New York are seeing rates drastically fall. New York is showing this a little slower because of the [port] congestion.
“Now these rates are a ripple effect. Everything happening now is a result of the market months ago, so demand now will show itself in rates a few months from now, and I think it is going to continue to decrease.
“But the market seems to be resuming healthy competition between carriers. I think rates will go back to an amount where it’s a very competitive market.”
FREIGHTWAVES: Can you elaborate on what you mean by healthy competition?
LEVY: “Healthy competition leads us back to an environment where carriers need to accommodate and salespeople need to sell. Sales reps are getting phone calls that other carriers are coming in cheaper, and those sales reps will look for partners that can meet those rates.
“Although, this showcases that the global shipping market is very reactive, and I believe that is what fundamentally needs to change.
“It’s currently September and I am working on my production for my next winter or summer round, and there are so many unknowns in pricing and capacity that I don’t know when to plan for that production.
“In addition, the carrier doesn’t know when I am going to be moving the product since I am not sure of their future pricing. It’s all interconnected. So what ends up happening is everybody blindly makes decisions based on what’s best for them, regardless if it’s best for the industry.
“So what’s going to happen is a big bulk of products are going to come in a short time frame, since everyone ships around the same seasons, and carriers are not going to be able to handle it. Or, other times carriers deal with extremely low demand and the carriers don’t have enough cargo to make profit.”
FREIGHTWAVES: How could the industry become more predictive?
LEVY: “There is a model to look at and it is the airline industry. That industry used to be quite chaotic until they gave people the ability to plan ahead, making the industry more proactive and pricing more stabilized.
“So how do you make people plan ahead? If a company can book space now for December at a certain price, the carriers are now aware of the cargo coming to them well in advance, stabilizing rates. In this situation, cancellation fees or last-minute cargo would be more expensive, so companies won’t want to wait till last minute to book, just like we book our own travel.
“The reason it is not available is because of [general rate increase (GRI)] practices, and we have to think about that practice in a very interesting way. There is no other industry where I buy products from a company based on their discretion of increasing the price later based on the ability for them to do so. … It essentially incentivizes chaos and disruption but yet doesn’t play in anyone’s favor.
“The reason that is happening is because carriers are running weekly sailings without asking, They don’t know what’s coming.”
FREIGHTWAVES: Do you see GRI practices coming to an end?
LEVY: “It won’t happen without a bigger movement. No one carrier is able to do it now. There would have to be some kind of FMC [Federal Maritime Commission] involvement or some leadership that says you can’t just increase pricing after it’s agreed for and that would force the industry to change.
“I think we have a great industry to look up to with the airlines. It has come a long way to reach that point of equilibrium and, like the seesaw, it requires a lot of work or else demand and pricing will continue to go drastically up or down.”