IHS Markit economist shares views on state of global ocean cargo industry: Part II

Editor's Note: Paul Bingham, Director of Transportation Freight Consulting at IHS Markit, always provides our readers with remarkable insights on the state of ocean carrier industry. In part II of a three-part interview, he covers a wide range of issues.

Logistics Management (LM): Are there any carriers today that are insolvent or vulnerable to a takeover?

Paul Bingham: The carriers with sovereign ownership or implicit national state support are most likely to survive difficult financial conditions.  During the Great Recession of 2009 no global container carrier was liquidated or allowed to fail.  That was the consequence of financial sector and national government support for specific carriers, so the precedent in the liner industry is that deep recessionary economic conditions do not necessarily lead to insolvency.  Takeovers among the remaining operators are possible although difficult right now because commercial financing with current debt market conditions worldwide is a challenger as well takeovers becoming increasingly difficult over time as fewer and fewer global carriers are left.

LM: What about consolidation? Will that trend continue?

Bingham: The slow, decades-long consolidation trend is not likely at its end from a long-term perspective.  The attraction of economies of scale operationally and for marketing / branding / administrative perspectives is still there within the liner industry, yet immediate conditions aren’t favorable towards further consolidation in the near-term.  There are remaining industry competitiveness concerns expressed by shippers and regulators in some countries that also act as an impedance to further consolidation, where concessions that further combined operations may need to grant regulators act to reduce attractiveness of further consolidation.  That factor at least slows progress towards further consolidation.  An increasing factor in this regard is the recent growth in nationalistic political concerns in some countries which could prompt some regulators to be more hesitant to approve further consolidation without competitiveness concessions.

LM: We’re seeing a steady decline of inbound vessel calls to West Coast ports. What’s driving this carrier trend…and will it continue?

Bingham: The drop in vessel calls has been a result of a number of factors but in 2020 it has been primarily the blanked sailings by carriers trying to sustain shipping rates.  Carriers are trying matching deployed capacity to bookings, week to week.  Carriers, through their alliances, have been able to hold rates higher than might have been expected given the overall drop in international trade volume with the pandemic-driven recession.  This pattern will likely continue in some form going forwards, although blanked sailings at some stage become effectively just reduced services offered on the trades and shipper expectations will adjust to match.  If most weekly sailings are blanked on a service long enough, essentially there is little difference from full cancellation of a service combined with an extra loader sailing added to the trade in some weeks.  Long-term, West Coast ports face challenges from country source supply shifts that see centroids of production of some goods in Asia, and growth in import demand in Asia move to the south and west.  That shift benefits all-water services to the East and Gulf Coasts, through Panama (for vessel service strings of up to about 14,000 TEU in size) or Suez (no limit on containership size, except at US ports.) 

LM: Do you expect carriers to differentiate their services to meet the unpredictable demand cycles of the pandemic?

Bingham: Operating as part of the alliances it is difficult for any one carrier to differentiate their services fundamentally in terms of ports of call, service speed or service reliability. Individual carriers can attempt to compete on factors under their control that can affect shipper choice such as free time, detention and demurrage charges, operational options such as storage – in – transit, and better integration with information service intermediaries who can help improve visibility for shipments, all helping shippers cope with unpredictable demand cycles.

Tomorrow: Part III