Top 30 Ocean Carriers: Complex scenario undermines confidence

Signs of a turnaround in the prospects of global container shipping companies began surfacing late last year when rates started creeping up through the peak season. Overcapacity, however, continues to haunt the industry and may keep it from a sustainable recovery.

Alphaliner, a Paris-based maritime consultancy, has reduced its global container throughput growth estimate for 2019 from 3.6% to 2.5% due to weakening volumes in the year’s first half. The full-year projections for container volume growth were also affected by the expected decline in trans-Pacific volumes as a result of an escalating U.S.-China trade war.

“Despite the uncertainties over the global trade environment, container volumes are still expected to achieve positive growth in 2019—albeit at a much lower rate than in the previous two years when overall throughput increased by 6.7% in 2017 and 5.2% in 2018,” says Stephen Fletcher, an Alphaliner analyst.

According to a sample of more than 250 ports compiled by Alphaliner, mid-year volume growth only reached 2.8% globally, slowing from 6.6% at the same point in time last year and from 4.7% in the fourth quarter of 2018.

In addition, adds Fletcher, the rate of growth is unevenly spread between regions. Several emerging markets have posted negative cargo volume growth and thus pulled down the global growth rate. Three regions recorded volume declines, with Middle East port volumes falling by 10.1%, while Africa and Oceania volumes fell by 4.4% and 1.1% respectively.

Among the gainers, both Chinese and American ports reported healthy cargo increases in the first quarter of the year, and volumes increased despite the ongoing trade tensions between the two countries. Chinese ports, including Hong Kong, posted a 4.2% gain in the first quarter, with Shanghai growing 7%, while Guangzhou, Qingdao and Xiamen reported gains of over 8%.

“The escalation of the trade war between China and the U.S. is expected to bring down container volume growth rates in both countries over the coming quarters,” says Fletcher. “The OCEAN Alliance carriers have already announced two void trans-Pacific sailings this past summer in anticipation of the drop in volumes, with more carriers expected to follow suit as trans-Pacific spot rates on the U.S. West Coast route have already fallen by 15% in the last two months.”

More “vexing” questions

At the same time, ocean shipping industry experts at the London-based consultancy Drewry have also lowered their 2019 container growth estimates from 3.9% to 3%. The move was prompted by concerns of a slowing economy brought on by “escalating geo-political tension” in many parts of the world and the “challenging new emission regulations” facing the industry.

Analysts add that as carriers begin fitting their vessels with scrubbers to abide by the new emissions regulations, they’ll be anxious to get their cargo in before the holiday season.

“If that’s not problematic enough, the early Chinese New Year will also prompt an additional rush before both vessels and Chinese suppliers become fully booked,” says Klaus Lysdal, vice president of operations at the digital freight forwarder iContainers. “So expect this to cause more problems than usual in the day-to-day process of the industry managing the peak season.”

Brendan McCahill, senior vice president of trade data content at Descartes Datamyne, says that shippers should not be concerned about obtaining sufficient capacity during peak season, however. “In the main, by pure arithmetic, it would seem that global capacity should be available to meet demand,” he says “With growth perhaps a bit less this year than last, and tonnage available, the lift should be able to complement the demand.”

However, McCahill allows that there are legitimate concerns about available capacity to compensate for any shift in sourcing that’s being precipitated by trade issues. “Will the ports capacity be adequate if cargo moves away from China? Will the berth be adequately covered with direct calls of smaller vessels or even through feeder or transshipment?” he asks. “It may be that capacity being in the right place at the right time could be a new complication for the ocean carriers to deal with in coming months.”

McCahill further notes that carrier consolidation remains “a vexing question,” as each year brings a new unanticipated announcement. “It’s always possible that some lines that have not bulked up on tonnage may find themselves in a position where acquisition makes more sense than fighting it out,” he says. “But it’s really too hard to be concrete in a forecast at this time.”

Future of blockchain

Several new developments in the ocean cargo blockchain arena have also stimulated interest, although McCahill remains one of the sceptics for the time being.

“The whole issue still seems to be a bit of a moving target,” says McCahill, “because while the desire appears to be growing, the actual implementation is slow. Very large shippers with clearly defined internal departments and dedicated staff remain in the best position to use this technology, but in many cases they’re dealing with smaller and somewhat fragmented suppliers.”

According to McCahill, the lack of single standards, rules and norms also remain significant obstacles for adaptation. “As a shipper, how can I be sure that the transaction with X partner will be the same with Y partner?” he asks. “Or, does my company need to customize and adapt each time we are conducting a blockchain transaction?”

Danish conglomerate A.P. Moller-Maersk, seems to be coming up with an answer, however, by recently launching the Digital Shipping Association (DCSA) with ocean carrier partners Hapag-Lloyd, MSC and Ocean Network Express.

Former Maersk executive Thomas Bagge has been appointed CEO and director of the association. He maintains that agreed standardizations on data and interfaces would soon enable the industry and partners to deliver information faster and more precise in terms of timeliness, automation and shipper experience.

Top 30 Ocean Carriers by Exports as of 2019

Top 30 Ocean Carriers by Imports as of 2019

Source: Descartes Datamyne
All information above is given as guidance only and in good faith without guarantee.

“It will reduce the dependency on manual processing and human confirmation for inter-operational information exchange across the industry, and also enable industry members and partners to the industry to be faster in their development and innovation of new digital services on top of the information backbone of the shipping industry,” says Bagge. “So, all in all, we expect less red tape and bureaucracy—and, of course, better customer service.”

According to Bagge, the proximity to shipping infrastructure, attractiveness for talent, as well as ease of reach was a decisive point in selecting Amsterdam as the global headquarters for DSCA. Meanwhile, the new association is in discussions with at least two other global ocean carriers who have shown interest in joining.

And when logistics managers convene in San Francisco for Oracle Openworld this month, another new ocean blockchain initiative will be unveiled. Oracle has recently collaborated with CargoSmart in what it’s calling a “significant milestone” by forming the Global Shipping Business Network (GSBN) blockchain consortium.

According to CargoSmart, nine leading ocean carriers and terminal operators signed a service agreement earlier this year to commit to provide resources to establish a not-for-profit joint venture to accelerate the digital transformation of the shipping industry. The ocean carriers include CMA CGM, Cosco Shipping Lines, Hapag-Lloyd, and OOCL. Comprising the terminal operators are COSCO Shipping Ports, Huchison Ports, PSA International, Port of Qingdao, and Shanghai International Port.

“From the outset, the foundation of this approach has been a decentralized, multi-party, fully managed enterprise-grade blockchain network that enables trust,” says Frank Xiong, Oracle’s group vice president for blockchain product development. “At the same time, however, we must maintain confidentiality of the commercial relationships as required by shipping industry regulations.”

Xiong admits that confidentiality is just one of the many challenges facing new blockchain solutions, adding that it will take three years to five years for multiple standards to be established—and then more time will be needed to create specific standards for logistics providers.

“But we’re off to good start,” Xiong concludes. “By speeding up the deployment of the initial pilot applications based on the platform’s rapid development and integration capabilities, CargoSmart has moved through quick innovation cycles to respond to shipper priorities.”