For the first time in the memory of experienced hands in the Ocean Freight market, there have been capacity shortages and significant price hikes impacting UK exports.
This is a new feature of what has been a very turbulent inbound market for a few years. If you factor in the potential implications of Brexit on international trade and the drop in Sterling, the Ocean Freight market presents a confusing picture.
The past two years have been extremely challenging for shipping lines. Two key drivers of the economics of the sector are flat trade volumes following the global financial crisis, and the arrival of ‘mega’ vessels into service with capacity to carry in excess of 20,000 containers. A sustained period of low container pricing was stretching many major carriers, culminating in the failure last summer on the Hanjin line.
The response from the carriers has been marked and the most significant has been the emergence of new operational alliances. In addition to the 2M co-operation between MSC and Maersk, this April saw the emergence of THE ALLIANCE between Hapag-Lloyd, Yang Ming, K Line, MOL and NYC. All are major players in their own right and now sharing operational services much like code sharing arrangements seen in the airline industry.
The most impacted are the UK based waste shippers. High volumes of paper and cardboard with low intrinsic “product” value that is shipped to China for re-cycling have seen container prices more than double. While not as extreme, there has been a corresponding knock on effect for prices for other commodities.
So where does this lead and what can be done?
- Things will develop as schedules settle down – as it is in the Carriers interest to maintain service levels and capacity in a reasonable balance to prevent volatile rate swings continuing indefinitely.
- It is clear that the Carriers are now exhibiting better control over capacity through the new alliances.
- Shippers need to plan future requirements better both for inbound and outbound containers and reach forward contracted positions with Carriers through their preferred forwarder – or directly if they have sufficient volumes.
- Your contract will be important. If there are shortages in capacity, ‘spot traffic’ may be left behind and thus impact the already long transits involved in Ocean Freight.
- The proposed ‘Belt and Road’ initiative – to create a modern silk route connecting China and Europe – may also have an impact in the longer term.
For more information, please contact us.
Article by: Kevin O’Neill
Article from Market Intelligence 17.3, click here to view the whole newsletter.