Descartes Datamyne reflects on current ocean cargo marketplace

Editor’s Note: As he has done in past years at this time, Brendan McCahill, senior vice president of trade data content at Descartes Datamyne, shares his views on the current ocean cargo arena. 

Logistics Management: Will the current ocean carrier alliance structures finally make carriers more solvent and more reliable?

 Brendan McCahill: This is more an economic question than a data question. To that end, suppose I offer an opinion, as I am not privy to the financial workings of carriers that participate in these alliances. Of course, carrier rationalization is not that new, having been practiced by European carriers since the second generation of container ships in the late 70’s/early 80’s. With the enactment of OSRA, the rationalizations became more common for trades servicing the United States. Clearly, the idea to share tonnage, coordinate deployment and add flexibility to schedules in a manner to maximize service versatility and port coverage gives better economic opportunity to participating carriers. The participants can now offer service at more diverse locations to their customers without the same capital requirement would they try to offer that service without rationalization. Can this help in assuring greater solvency? The answer should be ‘yes’, as there are more revenue opportunities throughout a distributed network that exists. Can this offer greater reliability? Again, the answer would appear to be ‘yes’ as there are a greater number of sailings and higher coordination expended, so if there is an interruption that arises, there are more substitutions that can be affected to fill any voids. Let’s bear in mind that the vessel is only one part of the total transportation chain offered by capital intensive operators, and we have seen chassis pooling, shared terminal operations and shared technology platforms, which also contribute to greater economic stability.

LM: Are shippers seeing more transparency in pricing and service as a consequence of enhanced information technology? 

McCahill: Greater technology supports more transparency but, over the past years, as vessels became larger, the need for cargo commitment to support all this new tonnage has also contributed to this truthful and transparent attitude. As the post Panamax vessels made their appearance and impact on the key east/west trades, the need to move freight payments from ‘grudge  money’ to ‘relationship management’ on the part of cargo interests and carriers has brought with it the added benefit of a meaningful level of transparency in the dialogue.

LM: Should we expect international trade tensions to have an impact on vessel deployments and schedules? 

McCahill: It would seem to follow that carriers have the ability to modify tonnage deployment and schedules to allow for the impact of trade tensions on cargo flows. It only makes sense that if cargo falls off in certain lanes, then carriers will look to deploy where they can get a maximum lift. Unknown at the time is whether or not the carriers may be burdened with requests to reduce rates to compensate for, or participate in, any impact on landed cost due to new duties assessed. A bit of shared misery would be a glib description of this thought.

LM: Can you share any insights on the status of IMO 2020 preparations and the freight rate implications shippers may expect to see? 

McCahill: It is hard to dispute that we all have an obligation to protect our environment, and that is exactly what IMO 2020 is all about, environmental awareness. Perhaps it is analogous to the U.S. based rulings on truck idling and the reduction of diesel particulates over the past 10 years? Heavy duty engine manufacturers (e.g., Cummins, Caterpillar, Detroit Diesel) had to find ways to reduce emissions, and they did. The community started off with great trepidation, cargo and carriers alike, but technology and a need to protect the environment found common ground. In the maritime world, this may take a bit longer as this is really a global initiative, with different levels of priority in different geographic regions, but attention to the environment is a task that has the global benefit we all participate in. 

LM: The Panama Canal Authority has proposed to make “toll modifications” designed to retain and “incentivize” increased cargo volumes.  Specifically, the proposal offers more attractive rates for shippers who benefit from the Panama Canal Loyalty Program by adding new levels with reduced rates in the capacity charge for shipping lines deploying between 2 million to 3 million TEUs, and additional reductions for lines deploying an incremental over 3 million TEUs. The incentive implemented in the last toll modification of fiscal year 2018 for total TEU loaded in the return voyage (TTLR) will remain in effect. What are your thoughts on this? 

McCahill: The ACP wants to win back cargo that it feels has been lost over the past few years with the advent of post Panamax vessels and schedule modifications prior to the opening of the third set of locks. The new toll structure has many features and one would think it will take some time for carriers (bulk, car carriers, container over bulk, pure cellular operators) to run a comprehensive series of ‘what if ?’ scenarios to glean the benefit. The economics are influenced by multiple factors, one being the cost of the tolls, another being the opportunity to lift more direct cargo and/ or more interim cargo along the itinerary (offset by increased port costs), the value of superior transit times, or even market dominance in some high volume port pair analysis. So, this is not a one size fits all in my opinion.

LM: Any other trends we may expect as we inch closer to 2020? 

McCahill: There are two specific thoughts that occur to me for 2020: sourcing diversification that could help to build or increase manufacturing capacity in some nations, and improved supply chain efficiency in the U.S. if ACE can be fully implemented. On the first, we can see that the trade tensions with China are causing importers in America to look to other nations from which they can buy goods. As (and if) this trend continues, those countries will build greater manufacturing facilities, employ more labor and then become more competitive on a world scale. This will in turn (again, I am not an economist, but have some common sense) will impact the ‘supply and demand’ curve of available sourcing solutions, which will keep price competition uppermost in a buyer’s mind. Once ACE is fully implemented in the U.S. (one really thinks this program needs to be fully stood up), the ability to clear goods and to involve Partner Government Agencies (PGA) more quickly in the clearance and entry process, should impact inventory costs and supply chains efficiencies over time. One would think so, again, applying some common sense.