Transportation & Logistics Analysis

Shipping companies powerless against market turnaround

July 11 2023

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BAROMETER. The first half was a very morose one for the container shipping companies and the big NVOCCs. They were obliged to look on powerlessly as their operating results continued to be dragged down by plunging revenues, cargo volumes and profit margins.

Cargo volumes fell back from their post-Covid peak to close to 2019 levels. At the same time, transport capacity and operating costs increased, as freight rates per container for goods brought from China to northern Europe oscillated dangerously under the four-figure mark. The Asia-Mediterranean market held up a little better but how long will this last? The shipping companies are placing their ships in this trade to try to benefit from the slightly more profitable rates, but this will automatically upset the existing balance between supply and demand. The restructurings expected at the start of the year are starting to take place. Personnel cuts, early retirement and other emergency measures are back on the agenda, promising difficult times to come for shipping company employees.

Rate increases cancelled

The reduction in rates can be seen in virtually all trades and bastions of resistance are few and far between. Even French overseas territories, which succeeded in maintaining very reasonable freight rates during the Covid crisis, are today being buffeted.

GRIs (General Rate Increases) are not working and are having to be cancelled before they come into force. Additional costs, like detention and demurrage charges, are being studied carefully by the Federal Maritime Commission in the United States, which is ready to hand out big fines to offending shipping companies. In Europe, the cargo side is much less ready than it was during the pandemic to accept the shipping companies' sometimes unjustified demands regarding port charges. In the inland transport sector, the carrier haulage side of the market is declining in favour of merchant haulage, depriving the shipping companies of a resource they could very much do with at the moment.

Block exemption controversy loses steam

In 2020, just as the Covid-19 pandemic was getting under way, the European Commission decided to extend the liner shipping block exemption for four years, allowing the shipping companies to escape the constraints of European Union competition law regarding the formation and activities of consortia. At the time, this decision met with an angry reaction from shipping companies' clients. 

In current conditions, however, the debate on the need to reform this system, the extension period for which is due to expire on 25 April 2024, has lost a great deal of its substance. Maersk and MSC are well advanced with their plans to end their 2M alliance, which indicates to the market that the future "divorcees" have no intention, in the normal course, of reversing the process. And shippers generally need the level of service which the two remaining alliances can offer. It looks a good bet, therefore, that they will put Brussels under much less pressure in this area (...)

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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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