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The beauty of chaos and the boomerang effect

“That is how the world moves: Not like an arrow, but a boomerang”

During last two or three decades, container shipping has suffered the damage created by very low freight rates, insufficient revenues and poor financial returns. In fact, there are two sides within the past liner market consolidation process. By consolidating and joining alliances, carriers could expect to share and reduce costs, improve efficiency and better manage ship capacity . On the other side, an oligopoly effect, harming customer service standards and market freedom.

As a matter of fact, the wave of market consolidation has transformed the global container shipping industry, leading to mergers and acquisitions between container lines, a reshuffling of shipping alliances and the expansion of shipping companies into port operations. Nowadays we face a situation where the three largest alliances now account for about 80% (!) of the global market. This has allowed capacity management to become the real driver of carriers' surprisingly high profitability, even with strongly decreasing total volumes (reefer is an exception).

In other words, the pandemic has led carriers to realize and put in practice the strong muscle they have ; regardless of low volumes carriers are boosting revenues. The intentions to develop the logistics and inland services as an extension to the maritime leg, seem to be shadowed naturally by this "full pockett effect". Monitoring the capacity and keeping the market under control, just in few hands, allows much better profits, though, regretably lower service standards . In fact, as reputed Drewry Shipping pointed out ; the container market dysfunction is bordering on chaos.

Meantime we read in the news : "Logistics operator Codognotto has launched a container shipping service from Poland to the UK to optimize cargo flows and tackle Brexit uncertainty". Although the idea may appear surprising, as the seaborne leg would likely take a longer transit time, lorry queues on both sides of the English channel might make the service viable. This happens while the traditional carriers haven't taken any significant action in this specific leg.

We can learn several lessons from this concrete case. Out of same we can underline two : If an industry is not providing the solutions required in the market, a new player will appear. On the other hand, the increased freight costs, may allow less inducement to kick off other similar regional services or shuttles by cargo-controlling counterparties, e.g. 3PLs .

As a result of the existing chaotic outlook in the liner scenario, carriers are pushing clients to the edge. And a 3PL needs to provide solutions. It lies in its genes.

We had seen carriers pretending to act as 3PLs....for the time being, without much success : Could we see the opposite trend : 3PLs entering the liner business ?

At this stage we do not have an answer to this question, but a lot of thougts, ideas and projects while liquidity ratios are growing worldwide. For the time being, we just quote Habben Jansen's, Hapag-Lloyd's CEO, recent comments while presenting the carrier's excellent Q3 results : " Strong volumes and equipment constraints will last through year-end if not longer."

 

 

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