Commentary Trading Places

By Peter Tirschwell

Carriers have long understood the advantages of capacity limitation , even if they could do little take advantage of it .

The past 25 years of container shipping since the launch of the TPM conference are a story of service quality and cost becoming progressively more negative for customers . The reason is a slow-but-accelerating assault on capacity , both from outside the industry and from within .

In those early days capacity was assumed , external shocks were minor and infrequent , and carriers took it as a given that they would provide capacity into a highly fragmented and competitive market , as that is what shippers demanded .

Even then , carriers understood well the advantages in capacity limitation , even if they could do little to take advantage of it .

In the first TPM keynote speech in 2001 , then-APL CEO Flemming Jacobs lamented the inability of carriers , in those pre-alliance days , to adjust capacity on a short-term basis . “ Flexibility to withdraw ships and services in response particularly to temporary changes [ in demand ] is limited ,” Jacobs told attendees .

That reflected carriers ’ deeply entrenched assumption of capacity provision .

Until just a few years before the COVID-19 pandemic , many carriers were loath to blank sailings , believing — correctly — that it would adversely affect their customers ’ supply chains . Now blank sailings and their negative impact on capacity and service are a fact of life .

Carriers ’ commitment to capacity took more subtle forms as well . In the decades after 2000 , carriers ’ marching orders to those negotiating with US West Coast dockworkers was to keep the ports open and fluid , said former Pacific Maritime Association head Joseph Miniace .

Yet after the pandemic and the mass withdrawal of capacity that led directly to record rates and profits , the views of carriers changed . Some were unbothered by severe Asia port congestion last year , seeing benefits in the negative capacity impact . This year , they seemed resigned to a strike on the US East Coast , believing they did everything they could to avoid it .

Shippers early on saw the emerging threat to capacity . In 2005 , after early bouts of West Coast congestion , shippers including Target , Nike , Macy ’ s and Johnson & Johnson sought to raise the alarm in Washington , an effort led by then- APL CEO Ron Widdows .

“ Twenty years ago , we began to see symptoms that indicated that without considerable changes in transport infrastructure , we were headed to a bad place ,” Widdows told the Journal of Commerce recently .

The assault on capacity has been most forceful from outside the industry : public health crises ( COVID-19 ), geopolitics ( Red Sea ) and climate change ( Panama Canal ). The impact of nationalism ( trade wars ) could well be coming .

But the assault is coming from within the industry as well — carriers ’ gradual acceptance , made easier by consolidation , that their ability to earn profits depends on capacity withdrawals that run contrary to the interests of their customers . This includes actions they themselves take , like blank sailings , but also takes the form of growing port congestion due to ships chronically arriving off-schedule and capacity expansion struggling to keep up with demand growth .

The view that a certain category of shipper has had enough of blank sailings and poor reliability overall is behind the Gemini Cooperation ’ s promise of 90 % -plus reliability .

But the potential that carriers have landed on the right side of capacity in the long term — despite investing billions in new tonnage in recent years — has even more serious consequences for customers going forward .

The reason is energy transition . International maritime regulators committed in 2023 to eliminating greenhouse gas ( GHG ) emissions from shipping by or around 2050 and will likely implement that by agreeing to binding regulations , including a mandate on carriers to transition to alternative fuels .

“ There is a very strong likelihood based on broad agreement that there will be a GHG intensity standard agreed at the [ International Maritime Organization ], to be implemented in 2028 and becoming progressively more stringent through 2050 ,” Bryan Wood-Thomas , the World Shipping Council ’ s vice president for environmental policy , told the Journal of Commerce .

Viewed through a lens of capacity being assumed and abundant — in other words , the long-ago status quo — that would be a problem for carriers , which have historically struggled to pass along even fuel surcharges to shippers at times of abundant capacity .

But in a market of constant capacity constraint whether due to external or artificial means , the idea of passing along higher alternative fuel costs to customers becomes an increasingly more realistic scenario for carriers .

That alone takes the challenges facing shippers to an entirely new level .

email : peter . tirschwell @ spglobal . com

78 Journal of Commerce | March 3 , 2025 www . joc . com