As momentous a year as 2020 is proving to be, even more critical is its impact, which will be felt for years to come, starting straightaway in 2021. As the pandemic hit, a transformation years in the making materialized in ocean carrier actions and behaviours long assumed to be beyond their reach: discipline on rates, ability to rapidly adjust capacity, achieving profitability amid a deep (though temporary) global recession, and charging for premium services. As it turned out, the past several years of carrier consolidation, restraint in vessel ordering and a coming-of-age of alliances as agile operating entities, had prepared the carriers for a moment no one saw coming--a once-in-century global pandemic and the supply and demand-side shocks and profound societal changes that resulted. As the investment bank Jeffries stated Sept. 29 regarding the carrier industry globally: “The stars are aligning for container shipping: historic consolidation, rational capacity management and now a fast bounce-back in demand post-lockdown.”
The impact is already being felt and it could be lasting, but ultimately could prove to be positive if the outcome is greater value created in the international supply chain. Trans-Pacific import rates remained at record levels as of early October, and on Asia-Europe as well; if rates remain elevated through the post-holiday lull and into Chinese New Year in February - still a big “if” given the economic impact of a second COVID wave - it will mean shippers in bellwether trades like eastbound trans-Pacific can expect a contentious contracting cycle. If this is indeed the “new normal” some believe it to be, an end to the year-over-year rate reductions that many shipper companies had become accustomed to may have arrived. Even with the unexpectedly strong year carriers experienced in 2020, return on invested capital at major publicly traded carriers like Maersk and Hapag Lloyd will likely be 5-6%, still below their cost of capital, suggesting that a rebalancing may still be in its early stages.
Many with long memories remain skeptical that a rebalancing is even possible, given carriers’ history of self-sabotage. But indications that this may not just be a cyclical phenomenon are already appearing. One example is specialized services available for a fee. In prior years, efforts by carriers to introduce, and be paid for, value-added services would typically disappear in the undertow of overcapacity and absence of rate discipline. The APL Ocean 53-foot container was but one example. But now carriers are introducing products like last on/first off options, faster services modeled off the expedited Matson service, capacity availability based on seasonality -- and not being laughed as easily as they would have in an earlier day. The concept of mutual contractual commitments, bizarrely uncommon in container shipping, is taking hold as the steady growth of the contracting platform NYSHEX is showing.
But if a rebalancing is underway, a transition can go one of two ways: it can simply cost shippers more, increasing tensions and inviting greater regulatory scrutiny. Or carriers will adjust, as some are trying to do by positioning themselves as end-to-end service providers, to an era when increasingly what matters most for shippers is supply chain performance--not just cost. Shippers need reliability, visibility and data that is accurate and transmittable into multiple systems where it can be put to use in decision making.
Because the story of how 2020 will impact the future is not yet written, and could go in different ways, the theme of TPM21 is “Redefining the Future”. Over one week and 75 sessions, TPM21 will deeply explore all aspects of the current environment and what 2021 and beyond will look like. The program will cover everything from the global economic and geopolitical landscape to the challenging operational environments of major port gateways. It will take place in a dynamic virtual environment with the goal of connecting attendees with the information they are looking for. We look forward to being on this journey together.