Top 30 Ocean Carriers 2021: Pricing heads up as shippers fight for space

Drama in two acts

For Verberckmoes, the global pandemic was a drama in two acts. First, the carriers had to deal with lower cargo demand. “They have managed capacity efficiently by taking ships and services out, thus preventing a free fall of rates,” he says. “Capacity management discipline is something they only recently learned.”

In the second act, the whole logistical chain is under severe stress. Carriers are making record profits, but also pay escalating charter rates, higher bunker fuel bills, and have to skip voyages as ships arrive late at the starting point of the rotation due to delays in previous ports.

If there’s a happy consequence to any of this, says Verberckmoes, shippers may expect more “greening” of the industry as it regroups in the future. “We see new initiatives such as e-methanol from Maersk, and more orders for LNG-fueled ships from Hapag-Lloyd and Zim,” he says. “Pressure from both shippers and authorities increases on the carriers to go green.”

He also hopes that shippers will return to forging better relationships with carriers, rather than chasing the lowest rates when capacity is no longer an issue. “Both the pandemic and the subsequent e-commerce boom have taken all carriers and market watchers by surprise,” adds Verberckmoes. “But shippers who don’t begin to initiate carrier partnerships now will be out in the cold in the future.”

Recent news about Amazon and Home Depot pursuing deals to secure charters made headlines, but most U.S. importers and retailers have not circumvented the time-honored tradition of working with forwarders and middlemen.

It’s also encouraging to learn that CMA CGM is the first major carrier to place a ceiling on spot rates as peak season gets underway. Analysts say other major competitors will do likewise in an effort to win back shipper loyalty.

“CMA is the clear winner here,” says Jon Monroe, president of Monroe Consulting. “Whether carriers follow or not, they have set the stage for a more reasonable approach to the trade. It’s as if the carriers need to make all of their money this year.”

However, Monroe is telling shippers not to expect rates to take a large tumble. If the carriers do nothing more than keep the rates at the same level, 2022 will be another record year. “The only question to be answered is whether demand will continue to support the rates,” he says. “In the case that it doesn’t, expect carriers to go back to the initiation of blank sailings.”

But all of this might be academic when measuring the escalating expense of sourcing from China. According to the Drewry World Container Index, the cost of shipping a 40-foot container (FEU) from Shanghai to Los Angeles reached $11,569 last month—nearly eight times higher than pre-pandemic levels.

Long-term strategies

For other analysts, the current protracted situation means that short-term plans should be abandoned while waiting for the global crisis to get better on its own.

Descartes, a provider of Cloud-based services for global logistics, advices shippers to shift their movement of goods to less congested lanes, even if it takes longer to get goods to market.

“If shippers desire more predictable delivery, they should also evaluate product mix to only focus on their high velocity SKUs for the limited transportation capacity available,” says Chris Jones, executive vice president of industry and services at Descartes. “Furthermore, we advise them to determine the viability of potentially late shipments for short peak seasons—like Halloween—where missing by as much as a month could result in goods that will miss their sell season.”

Alfred Hille, director of product marketing, global trade intelligence at Descartes, notes that U.S. importers witnessed an overall ocean container throughput jump of up to 26% this year thanks to the efforts of 22 of the top 30 carriers.

“All of these vessel operators experienced growth in the double digits,” says Hille, “which demonstrates that high-growth carriers are the ones that can meet shipper needs in terms of the adoption of measures to mitigate the worst of the supply chain crunch, as well as manage shipper expectations in a strategic manner.”

For U.S. exporters, there’s a different story to tell, says Hille. “We’ve witnessed a realignment toward carriers that can be a guiding light to get goods to their destination on time and cost effectively,” he says. “In this situation, shippers will also gravitate toward carriers who are large enough to provide capacity at a reasonable rate, as well as flexible enough to be using more ports and alternative trade lanes.”

Descartes charted the top “countries of destinations” for U.S. exports and discovered that select markets in Asia—Vietnam, Thailand, India, and Malaysia—are all seeing significant annual percentile growth. “CMA has done particularly well, as has Yang Ming Marine Transport and Orient Overseas Container Line,” says Hille. “All share being heavily reliant on U.S./China Trade, however, and that’s been down by 14%.”