Container Shipping Prepares for “Volatility due to Overcapacity”

The following are some session highlights from the Trans-Pacific Maritime Conference (TPM23) which took place from February 26 – March 1, 2023 in Long Beach, California.

“Not out of the woods yet”

“The very, very good news is that the multiple crises we’ve seen in the last two years have not derailed the U.S. and global economies, but the level of uncertainty remains at near-record levels, so we’re not out of the woods yet,” said Nariman Behravesh, former chief economist of IHS Markit, now part of S&P Global. In an upgraded outlook, S&P Global said the recession risk is fading for Europe and North America. Yet, while the global economic outlook has improved in the last month, there are warnings that persistent core inflation will continue to suppress growth.

No replacing China

“None of these other countries can replace China, none of them has the kind of colossal capacity that’s built up many decades in China,” said retired General David Petraeus, adding that no country could replace China’s manufacturing might. The shift away from China has been slow-going but accelerated last year. China accounted for 40.7% of all US imports last year, according to PIERS, down -1.7% from 2021 and the lowest level since 2006.  

Pricing competition

“The only thing that scares me more than shipping lines without money is shipping lines with money,” said Alan Murphy, CEO of Sea-Intelligence Maritime Analysis. “They should invest in other products like technology and customer service.” Murphy, who believes the Trans-Pacific is already in a rate war, said the industry’s historic profits — some $290 billion last year, according to Drewry — could make any escalation bloody and long. Unless carriers ramp up blank sailings, he warned that container spot rates on the Trans-Pacific will fall farther in March and April.

Alliance fault lines

“We are not an integrator,” Mediterranean Shipping Co. CEO Søren Toft told TPM23 attendees. “We are first and foremost a shipping company. We let customers choose what they want.” Underscoring why MSC and Maersk will wind down the 2M Alliance at the end of 2024, Toft said MSC was on a different trajectory than Maersk, once the largest carrier by capacity. MSC is set to receive some 753,000 TEU of new capacity this year, while the other major carriers will take delivery of some 1.2 million TEU combined, according to Jan Tiedemann, senior analyst at Alphaliner.

West Coast labor talks

As the White House’s new nominee for labor secretary, hopes are for Julie Su to restart negotiations between the International Longshore and Warehouse Union and Pacific Maritime Association. “Both sides [ILWU and marine terminal employers] she knows very well from her work in Sacramento,” said Port of Los Angeles Executive Director Gene Seroka. In her role as California’s labor chief, Su worked with longshore workers to set up a training program for cargo lashers.

Source: Journal of Commerce

Analyst Predicts Merger Potential for Two Ocean Carriers

The transforming carrier landscape could mean a merger of Hapag-Lloyd and ONE in two to three years, according to Lars Jensen, CEO and partner of Vespucci Maritime, speaking at the TPM23 conference.

Jensen believes that with the dissolution of the 2M partnership, all alliances, collaborations, and partnerships are approaching break-ups. “The next thing I expect to happen is a divorce announcement from Ocean Alliance and my expectation is that it is going to happen sometime here in 2023,” Jensen pointed out. He said the third major collaboration, THE Alliance, will also be at risk.

The developments then set the stage for a merging of two leading carriers, Hapag-Lloyd and ONE. “In my view that is going to happen in 2025 or 2026 and that will create a carrier landscape where you have an MSC that is substantially larger than the other ones, then you will have a very large segment of carriers right below consisting of Maersk, CMA, Cosco and a combined Hapag-ONE,” the analyst states.

Hapag-Lloyd is the world’s fifth-largest carrier, while ONE is number seven. Combined, they would assume the fourth position measured in current capacity.

Source: ShippingWatch

Collective Action is Key to Sustainability Efforts

Ocean Network Express (ONE) CEO Jeremy Nixon told attendees at TPM23 that decarbonizing shipping should not be a competitive issue but a collective effort by carriers looking for the fuel of the future. He pointed out the futility of “trying to reinvent the wheel individually”. “This is a collective call. If we move forward quickly to decarbonize shipping, we can decarbonize the world,” Nixon said.

Nixon said decarbonizing transport also depends on bridging the price gap between fossil fuels and greener alternatives. He notes that the average cost of using current carbon fuels on headhaul trades was about $1,000 per FEU. Alternative fuels such as methanol, ammonia, or synthetic liquefied natural gas (LNG) were likely to be two or three times more expensive.

The cost of decarbonizing the industry will be about $3 trillion, Nixon estimated — and that cost burden would need to be passed on. “We all have to pass on our costs in a logical, transparent way through the supply chain, right to the end-customer, so when we go in a store, we can see what the price and what the CO2 [carbon dioxide] footprint of a product is, and we have all contributed towards trying to minimize it,” Nixon added.

Katarin van Orshaegen, commercial lead and spokesperson for GoodShipping, an organization involved in decarbonizing shipping, agreed that the benefits of implementing sustainable transport solutions outweighed the additional costs. “Our customers were not afraid to pay premiums because they saw the costs of not doing anything,” she told the TPM23 panel. “Being the frontrunner gives you access to consumers that are getting more educated, sustainable buying is increasing, and by not doing anything, you would lose all this.”

Source: Journal of Commerce

U.S. Intermodal Providers Expecting a Transloading Surge

International intermodal no longer accounts for most containerized rail moves in North America. A growing number of importers are transloading to move products inland from ports.

Before the COVID-19 pandemic, approximately 51% of intermodal shipments were in ocean containers and 49% were domestic containers or trailers. Since 2020, the market share has reversed. According to the North American Intermodal Association, 51% of cargo is moved in 53ft equipment and 49% is transported in 20ft or 40ft ocean containers.

The shift from international intermodal (IPI) to domestic intermodal has been noticeable. From November to January, ocean containers accounted for only 47% of all intermodal shipments, while domestic containers accounted for 53%.

Importers increasingly frustrated with ocean chassis shortages and overcrowding at inland hubs like Chicago, Dallas, Kansas City and Memphis are turning to domestic intermodals. With import volumes declining in recent months, companies are seeing a transition in how shippers view transloading, which involves transferring the contents of ocean containers into domestic boxes.

On the East Coast, transloading is thriving in port cities such as New York and New Jersey; Norfolk, Virginia; and Savannah, Georgia, except cargo is transferred into trucks because of the shorter hauls to inland points. Shorter distances mean the environmental and cost benefits of using rail are not as significant.

While transloading makes sense for smaller consumer-packaged goods, including those with a high number of units per container, it may not be the right solution for everyone. “It has to be the type of product that is going to have minimal damage during the labor-intensive transloading process, or it could cause more problems than it’s worth,” Ken Kellaway, CEO of RoadOne IntermodaLogistics said at TPM23.

Source: Journal of Commerce

Analyst Warns of “Zero Growth” Risk as Air Cargo Capacity Exceeds Pre-pandemic Level

According to market analysis from CLIVE Data Services, air cargo capacity has risen above the pre-pandemic level for the first time in four years. Global air cargo capacity increased for the eleventh consecutive month in February, up 11% in the same period last year. Meanwhile, global air cargo volumes fell -4% year-on-year (y/y), and rates stabilized.

Niall van de Wouw, chief airfreight officer at Xeneta warned, “we might still be seeing zero overall growth for general air cargo by later in the year”. He added, “The air cargo industry should be focused on where growth is going to come from because the general air cargo volumes have seen negative growth for four years, and based on the first two months of 2023, are still down -8% in terms of chargeable weight compared to four years ago. That is not a growth market.”

Van de Wouw noted that 2019 was also a relatively weak year for air cargo after a buoyant 2018. He also pointed out there will be an influx of capacity starting April when summer flight schedules begin, noting there would be no “fundamental changes that will help the current market conditions”.

“There is a hope and expectation of volumes increasing in Q3 as companies restock, but when I talk to shippers, I don’t hear anyone saying they’re going to ship more airfreight. If restocking comes, many shippers will look firstly to use cheaper modes of transport and, from where we are now, even if there is a boost, we might still be seeing zero overall growth for general air cargo by later in the year,” he explained.

Asia Pacific (APAC) to Europe, Southeast Asia to Europe, APAC to North America, and Europe to North America spot rates remained above the pre-pandemic level. Spot rates from China and other Northeast Asian regions remained elevated.

Source: Air Cargo News

Container Line Schedule Reliability at 52.6% in January

Sea-Intelligence reported a month-over-month (M/M) decline in schedule reliability of -3.8% in January 2023, putting reliability at 52.6%. Although, a year-over-year comparison indicates schedule reliability improved by 22.2%. The average delay for late vessel arrivals continued to improve, with the latest figure at 5.26 days, a M/M drop of -0.24 days. “With that, the delay figure is now closer to the 2020 level, with a Y/Y decrease of -2.68 days,” noted Sea-Intelligence in its assessment.

Maersk was the most reliable top-14 carrier in January 2023 with 58.3%, followed by MSC with 57.7%. There were 3 more carriers with schedule reliability of over 50%. The remaining carriers all had schedule reliability of 40%-50%.

ZIM was the least reliable carrier in January 2023 with schedule reliability at 41%. All top-14 carriers recorded a M/M decline in schedule reliability in January 2023. Wan Hai recorded a double-digit decline of -15.4% while Hapag-Lloyd had the smallest decline of -0.4%. All carriers except for Hamburg Süd recorded double-digit Y/Y improvements in schedule reliability in January 2023

Source: Sea-Intelligence

Leave a Reply

Your email address will not be published. Required fields are marked *