Commentary Trading Places

Peter Tirschwell

“ Industry veterans believe that within container shipping , it ’ s sunk to a new low from which it will be hard to recover .”

It started when the pandemic swiftly disabused shippers of the assumed status quo that supply chains are cost effective and consistent , even if this form of value creation for them came , though no fault of their own , at the expense of value destruction for carriers .

It continued when out of the pandemic came not the respite shippers were hoping for , but rather a form of perpetual upheaval such that the next disruptive event is fully expected but the source , severity , onset and duration remains a mystery .

Taken together , those factors have recast supply chains as chronically at risk , clashing with corporate leaders ’ aversion to investing in resilience — an insurance policy of buffer stock , front-loading and technology that may all be for naught if the next expected shock were to somehow not materialize .

But even then , the coast isn ’ t clear . Newly perilous terrain confronts shippers ; not from the dangerous external world of geopolitics , climate , natural disaster or public health , but rather from within the industry itself .

The carriers — who could be reliably counted on to over-order on tonnage but then mercilessly raid each other ’ s cargo to fill those ships at any price — appear to have changed . Post pandemic , this behavior is no longer a certainty .

Many industry sources were asked in recent months if they believe there are aspects of carrier behavior that are new and permanent , irrespective of the ebbs and flows of the market . Not universally , but overwhelmingly , the answer has been “ yes .”

The big context — but not the whole story — is consolidation and the refinement of alliances as able adjustors of short-term capacity . All those years of below-par profits led to wave after wave of mergers , acquisition and bankruptcy such that the Top 10 carriers control more than 84 % of global capacity , according to maritime analyst Alphaliner . This is heavy concentration , for sure , but still leaves room for the further consolidation that senior industry figures believe is still possible . For shippers , the implications go beyond the simple reality of consolidation and alliances . Among other things , consolidation means what once was a big piece of business for a carrier has become progressively smaller as the customer ’ s share of a carrier ’ s book of business shrinks . A beneficial cargo owner ( BCO ) shipping 25,000 containers and spending $ 50 million on ocean freight annually sounds big , but it does not hold the level of importance it once did for the largest carriers .

If even some of the largest shippers are less important than they once were , then hopefully the relationship could hang on other factors like trust , win-win relationships and collaboration . ( A pause here while the reader chokes back laughter ).

The shipper-carrier relationship has always been strained and confrontational at some level . It is freight transportation writ large . But industry veterans believe that within container shipping , it ’ s sunk to a new low from which recovery will be difficult . How many truly strategic relationships does a carrier have , a senior executive at one of the largest lines was asked over the summer . The answer was none , or virtually none .

With few exceptions , carriers and shippers are not riding the cyclical waves together . The zero-sum game where “ my gain is your loss ” and vice versa , is the default . A few large BCOs got stuck so badly during COVID that they saw the light and became converts , but not many .

At this point , the expectation among carriers is simple and stark : Shippers will take full advantage when the opportunity presents itself . The expectation among shippers is — or should be — that carriers will do the same . Signed , legally vetted contracts are not at the end of the day enforceable , as inexplicable as that may sound . Can the government step in to change that ? The answer will be a long time coming .

Too many carriers walk away from signed agreements when space gets tight , denying space on ships to contracted customers in favor of spot market business . Too many customers – often directed by their C-suite — walk away from those same signed agreements when a better deal can be had on the open market .

Those carriers who thought they could “ invest ” in customer relationships during the height of the pandemic , by honoring contracts that other carriers didn ’ t , learned the costly lesson that loyalty is rare and a concept embraced by a much smaller segment of the shipping public than what was thought .

For shippers fending off one supply chain shock after another , while trying to keep inventory and other supply costs in control , what is happening on the carrier front for them is yet another headache , and one not likely curable any time soon .

Email : peter . tirschwell @ spglobal . com .

62 Journal of Commerce | September 23 , 2024 www . joc . com