Transportation & Logistics Analysis

Shipping companies' gambit pays off  

June 15 2022

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BAROMETER. Despite weakening demand, the shipping companies kept control of the market in May. The gambit was a risky, one but it worked.

Even the most experience supply chain managers must be succumbing to a form of fatalism at the moment, so little meaning has the term management in the international logistics business at the moment. It essentially involves coming to terms with the sea of uncertainties which characterise the current period and one can only recognise that the return to a more coherent operating mode is becoming an increasingly distant prospect.

"Importers are now bringing cargo just in case, not just in time, and it makes up for more boxes sitting at the port," said the ever astute Gene Seroka, executive director of the Port of Los Angeles, recently. He is nothing if not lucid! Smart observations apart, however, uncertainties of all kinds are pushing importers to reconstitute their stocks in a way which would have got a supply chain manager sacked three years ago! The world has changed very quickly.

Solid rate equation

The shipping companies seem to have won the battle for the foreseeable future. Long-term contract rates are getting dangerously close to FAK spot rates, and this is levering rates up to even higher levels in the average rates basket. Capacity is being kept under particularly tight control and the risk of external rate regulation is looking increasingly unlikely.

Barring the unforeseen, the shipping companies can count on solid fundamentals to make an attempt to triple their 2021 results in 2022 despite a slight fall-off in cargo volumes. This should enable them to find the resources to satisfy Brussels' "greening" expectations for the industry.

Shipping companies call the shots

At a time when shipping is more than ever an adventure in the strictest sense of the term, the increase in the profitability of the container shipping industry has put the shipping companies more than ever in the role of arbiter.

This amounts to a fundamental change of the sector's operating model. Until now, container shipping was seen as a secondary, low-cost market which served to enable the major industrial and distributions groups to implement their globalisation policies. Now, shipping must be integrated into the arbitration process to assess the feasibility and relevance of global trade.

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Expert in Ocean shipping for 25 years, Jerome puts all his knowledge of the industry to contribution for Upply. Ship captain at heart, he has written the English-French Lexicon of Containerized Shipping (Paris: CELSE, 2001).
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