2019 CONFERENCE OBJECTIVE
To create value for beneficial cargo owners — BCOs — including retailers, manufacturers, consumer product companies, traders, energy, agribusiness, and other major shipper organizations through hiqh-quality networking alongside an intensive three-day program addressing key challenges shippers face when relying on container shipping services to support their supply chains.
2019 THEME: IS THE MARKET TURNING UNFRIENDLY TOWARD BCOS?
As 2019 approaches, container shippers are looking at a more unforgiving ocean market that holds the potential to undo the pricing gains they have experienced in the decade since the global financial crisis without the promise of greater value being created for their supply chains. The shift comes on top of continuing challenges on the North America landside in terms of tight trucking and intermodal capacity that is expected to continue well into 2019. A key question yet to be answered: Can technology rescue shippers facing a more unfavorable market environment?
On the ocean side, putting aside the fact that carriers have substantially less capacity on order — approximately 11 percent of the current fleet — than at any time since well before the financial crisis, carriers are staring at the likelihood of sharply increased fuel costs to comply with the Jan. 1, 2020 implementation date of IMO-imposed limits on sulfur emissions. Maersk Line in August estimated its own extra cost to be $2 billion. The IMO issue can be viewed in two ways: On one hand, despite a slew of IMO sulfur related surcharges announced in late 2018, carriers have enjoyed little success historically in passing along higher costs to customers--a big reason why first-half 2018 carrier earnings took a hit due to higher bunker prices. So from this perspective, shippers can rest easy.
But on the other hand, certain factors could work decisively against BCOs. In general, when carriers' backs are against the wall, that is the moment they will mobilize by withdrawing capacity even if it means customers taking it on the chin. Remember 2010? The peak season of 2018 can be seen as a mini-version of that.
But the IMO issue could force even more drastic actions from carriers. For example if the price differential between low and high sulfur fuel is high, carriers may respond by further slow-steaming their vessels, bringing speeds down to as low as 16 knots on certain services. To maintain a weekly schedule with such low speeds, additional ships will be needed in any given string, which will have the effect of withdrawing capacity from the market and creating the potential for a major capacity crunch depending on what happens with demand. Demand of course is very much a wild card of its own given the potential impact on the trans-Pacific from the escalating US-China trade war. Drewry in October downgraded its global demand forecast, saying the "industry now faces being stuck with the current over-supplied situation for several more years."
Overall, the risk for BCOs from decisive carrier action in response to adverse market conditions is arguably greater since consolidation: "With the recent consolidation we are starting to see the emergence of different conduct and pricing power," one well-connected observer told the JOC in August. Drewry added: "there are signs that some aspects of predatory pricing practices are receding and carrier vessel deployment more disciplined." Indeed, with fewer carriers left to fall out of line and the prospect of much higher bunker costs come 2020, shippers should be on guard for the possibility of a more hostile market environment in the trans-Pacific, Asia-Europe, and other trades in 2019.
The shifting market dynamics is playing out alongside a number of other, slow-motion developments that have the potential to impact the market in fundamental ways. There are early signs of potential — emphasis on potential — industry disruption where carriers are probing whether an opening exists to expand into services traditionally offered by forwarders; where e-commerce platforms like Amazon and Alibaba grow their presence in logistics; and where customers could become competitors (witness rumors last year of Home Depot looking at acquiring XPO Logistics).
Technology, meanwhile, is stirring at the margins, with blockchain and artificial intelligence beginning to show early signs of promise but remaining far from having a transformational impact.
A sleeper development that will assert itself in 2019: dynamic pricing in the spot market, which might have its big moment in 2019. There is little prospect of dynamic spot pricing — similar to airline pricing — replacing the annual trans-Pacific contracting cycle or the large-volume discounts typically extended to Walmart and other big-box shippers. But live feeds of rates directly from carriers to the market could have a much larger presence in the spot market. Developments such as the $44 million investment by the Singapore Exchange (SGX) into Freightos points to a renewed effort to spark interest in container freight indices, spot market pricing and possibly derivatives trading, although this idea has going nowhere in the past. Along with that could come shipper-unfriendly contracts with penalties for no-show containers, a problem at the top of carriers' list of priorities to reduce or eliminate. Most spot market platforms just need density, especially on the buyer side, to gain meaningful traction.
And, of course, there is the ongoing dissatisfaction of shippers on visibility. Active sensors on dry containers will find a market in certain situations, but the real-time knowledge shippers demand about cargo status, particularly when shipments are delayed, must come from the carriers and it's ultimately up to them to decide whether they will be willing to provide it. They certainly don't today, but with carriers talking a good game about being more customer-friendly, there is at least a chance they will finally address visibility in a real way.
- Market Outlook and Trends
- Technology and Automation
- Exporting From the US
- Longshore Labor
- Trucking and Landside Disruption
- Port Productivity and Efficiency
- Sector-Specific Analysis
- Cold Chain Logistics
- Industry Workshops
- Shipper Case Studies
- Ted-Style Talks
TOPICS TO BE EXPLORED:
- IMO 2020 Sulfur Cap: It will affect carriers for sure but what about shippers?
- How long will the capacity crunch in North American trucking last?
- Cargo Delays: Is the rolling of cargo that BCOs experienced in the summer of 2018 a harbinger of things to come?
- Freight rate market: are we headed toward a seller's market?
- US-China Trade War: How is it impacting the trans-Pacific?
- US Longshore Labor: Is it finally peace in our time?
- California seeks to hold BCOs reponsible for drayage employment disputes
- Technology Innovation: What solutions can actually make a difference for BCOs?
- Will visibility ever improve? Ask the carriers.
- Case study on effective 3PL outsourcing of Asia origin logistics.
- Case study on modernizing and transforming an import program.
- Case study on the benefits of the new South Atlantic chassis pool for BCOs.