Carriers and shippers are often too focused on the issues in front of them. But many of these perceived problems are illusory and less of a concern than they are made out to be.
Container lines should not be overly concerned with misguided challenges when there are enough real ones to go around
CONTAINER shipping is often confusing the real challenges it faces with “fake challenges” that are less of a concern than they are made out to be, according to SeaIntelligence Consulting chief executive Lars Jensen.
Speaking at the Journal of Commerce’s TPM conference in Long Beach, Mr Jensen said issues such as pricing levels were being overblown.
“Carriers are looking at pricing levels and saying they are too low, and clearly they have a point,” Mr Jensen said. “But pricing is a tactical, practical challenge if you don’t make money. It is, however a symptom, not a challenge in itself.”
Concerns about what would happen following the implementation of IMO 2020 low-sulphur rules, the introduction of bunker adjustment factors and the likely fuel price increase were also tactical problems, he said.
“But even if bunker costs increase by $200 per tonne, which they seem likely to do by January 1, fuel prices in January will still be lower in January than they were five years ago.”
Shippers had paid for higher fuel prices five years ago with higher freight rates through a number of different floating bunker adjustment formula mechanisms.
“It is not like we are trying to reinvent the wheel here. It is a tactical problem, but not a fundamental one for the industry,” Mr Jensen said.
“The real issue that is likely to raise its head is physical availability. Will it be there in December when the carriers need the fuel? We could see some short-term disruption happening there.”
Changes in alliances were also likely to continue as they had over the past 40 years, but again this would not represent a fundamental change in the industry.
“It’s fun to talk about because it is the fire in front of us, but it is not really going to change anything,” he said.
Other myths in the industry that needed dispelling included the idea that online pricing would lead to a race to the bottom as carriers undercut each other.
“But data from online bookings over the last year indicate that 49% of shippers did not book the cheapest price,” Mr Jensen said. “Shippers think about more than price and the real problem is not how dangerous it is to put out online prices, but not spending enough time building up a solid brand promise.”
Digital solutions such as container tracking were also one of the myths box shipping needed to address, he added.
“Is it really true that if you are shipping 25,000 containers you need to know where each of them is all the time? Not really. It is a symptom that right now, shippers don’t trust their carriers to tell them when something has gone wrong.”
Shippers were not after real-time transparency, but looking for reassurance that if something goes wrong, the carrier would be there to inform and help them.
This is linked to the premium that could be charged for service, despite carrier beliefs that shippers were only interested in price.
While overcapacity remained a problem, it was the consequences of it for shippers that were the real issue, Mr Jensen said.
“We are slowly climbing out of the overcapacity hole. It will take another couple of years to reach a balance, but it is not the capacity we should be looking at, but the consequence of that overcapacity.”
With too much capacity, carriers were forced to offer fewer weekly services as they attempted to fill larger ships. This led to fewer choices, more transhipment and higher costs with longer transit times.
“That is an inevitable consequence of the overcapacity in the market, as are blank sailings.”
One bright spot for the market was that the cycle of buying bigger ships for lower slot costs, then struggling to fill them and needing to partner other lines in alliance had come to an end.
“When larger vessels are delivered, there is not an option to take another turn of the wheel, and go down to two alliances. Competition authorities would not allow just two alliances.”
But the natural consequence of this would be fewer weekly services and more transhipment.