Transportation & Logistics Analysis

Why shipping needs regular services

September 28 2021

Restoring quality of service in container shipping necessarily involves respecting weekly service frequency. The shipping companies are not in a hurry to do this, however.

1/ Why regularity is essential for quality of service in container shipping

In so-called "regular" line container shipping, the time and date of a vessel's departure is determined by the schedule, unlike in tramp shipping, where the departure time and date is in a certain sense decided by the vessel's cargo. The schedules provide essential data which is integrated into the modern SAP or Oracle-type supply chain software which is used to manage seaborne transport and all the different parameters which depend on it. When these time slots are no longer respected, transit times are automatically lengthened, buffer stocks are exhausted and last-minute switches to air freight need to be made.

There is no escaping the fact that, for the last year and a half, shippers have found themselves faced precisely with this unhappy situation. The sector is more in "semi-liner" mode than in real regular line mode. Given that alternatives to shipping are limited, shippers have no choice but to increase their stocks in Western consumer markets. This trend has boosted the storage market, which had not been on top form before the pandemic, but is expensive for the shippers.

2/ Why the schedules are not respected

Getting a 22,000 TEU ship to leave Asia for Europe on a metronome-style weekly line is a real operational exploit for the shore side in the loading ports. Not only must there be enough merchandise; the necessary equipment must also be available. Even when demand is very strong and steady, as it the case now, it is impossible to achieve this exploit all the time, week after week, on all services offered. The 22,000-24,000 TEU ships which are being brought into service today, will only come into their own in five or 10 years. They were built, moreover, with this in mind. It is normal, therefore, that we should be struggling now to completely fill them.

In a shipping company, the operations and line management services are the two entities, which, working closely together, have the power to decide if a ship can leave or not and also whether it should be slowed down or speeded up. Operational difficulties can justify a decision to modify service schedules but we can see that, in reality, other factors are being taken into account. For years, freight rates were extremely low and failures to respect schedules were often linked to the need to increase load factors so as provide shipping companies with a minimum level of profitability. This is no longer the case, however. The freight rates currently being applied would enable ships to make a profit even if they were only 70% full.

3/ Are the shipping companies ready to make an effort?

The shipping companies can feel the pressure increasing. By announcing that they were freezing FAK rates for the next few months, CMA CGM and Hapag Lloyd sent the market a conciliatory signal. But the impact of the rate freeze will be limited. In reality, so long as they are not obliged to do so, the shipping companies do not want to give up any of the opportunities currently coming their way. High precision capacity management is enabling them to steadily increase their contract rates to the same level as "public" FAK rates, while, whenever possible, clients are obliged to commit themselves to longer contract periods with the aim of pushing the market into long-term acceptance of the new higher rate levels.

The strain on capacity is not yet over, moreover. The M2 alliance (Maersk and MSC) recently announced, late in the day, that they would be carrying out a major blank sailing programme for ships leaving China during Golden Week.

4/ The new liner shipping normal?

For the time being, container shipping services are much more expensive. Average prices for imports from Asia have been increased fourfold, while, at the same time, there has been a loss of visibility on transit times, which are roughly twice as long as they were before the pandemic. China is setting the pace and the Asia-Europe and Asia-US trade lanes are serving as locomotives to drive up freight rates on lines everywhere in the world.

The return to normality and the famous "reset" we discussed in our last container shipping barometer will only come if regular line services return to regular frequency. For shippers, this offers the only prospect of the crisis coming to an end. A return to regularity is also keenly awaited by the port terminals which are wearing themselves out preparing and then undoing their preparations for ship calls as loops are changed and ports dropped.

On the other hand, a real return to service regularity would have the added advantage of easing pressure on space slightly and probably rising price pressure at the same time. The shipping companies are clearly not in a hurry to start the process, however, as they return to better financial health after years of struggling.

Governments are nevertheless starting to become concerned about the highly inflationary situation in the container shipping sector, which is threatening to hold back growth in world trade. The fundamental question today, therefore, is to know if the regulatory bodies will be able to exert pressure on the shipping companies to force them to re-establish "regular" line services, to use the standard term which has been so misused over the last two years. 

A return to regularity would inevitably give the market some breathing space but would not solve all the problems thrown up by the current crisis. We should not forget that there is still a lack of available containers. This remains a fundamental problem, which is almost more complex technically speaking than restoring regular frequency on liner services. 

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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).