Pricing discipline replaces shipping line competition

The profound supply chain challenges unleashed by the Coronavirus pandemic are transforming the cost and characteristics of global container shipping and the shipping lines are unlikely to surrender a ‘winning-hand’.

Rising container volume demand and a controlled balance of supply and demand has placed pricing power with the carriers, with continued competition for vessel capacity and empty containers meaning that the shippers who pay the highest price will get the capacity and equipment. Whether this is deliberate, by design, or simple market forces is open to interpretation but rates have been, and continue to be, at unseen levels due to the dynamics. As an observation to the market situation.

In terms of demand, global container volumes grew last month 3.5% year-on-year, but the distribution is uneven across regions and trades, which is why we continue to see congestion and the re-allocation of capacity, which causes tight supply/demand in trades not seeing the demand growth.

Today’s situation is so different to the 2009 financial crisis and the resulting fallout, when carriers also laid up tonnage, because even though freight rates shot up during the recovery, a deluge of new vessel deliveries quickly created overcapacity, leading to a price war, as carriers slashed rates to fill ships and increase their market share. 

The carriers have learned from those experiences and with the alliances effectively controlling volumes, price wars are looking unlikely. And, despite hope that the situation might ease after CNY, that hope is fading, as the lack of available vessel capacity and equipment, that has been such a challenge for the last eight months, is showing no inclination to disappear.

In fact, given the intense competition for scarce vessel space and equipment, significantly lower prices will not occur, even if demand subsides slightly it has been reported by several industry experts in the trade press.

Contract with Metro, to ensure vessel space and equipment availability

Carrier on-time performance globally is at an all-time low, which means that shippers should share forecasts of their requirements at the earliest possible time, build longer lead times into their supply chains and be prepared to contract with us, to ensure vessel space and equipment availability.

While carriers have ordered some 20,000 TEU-plus vessels, we may begin to see a move away from the Ultra-large and Very-large containerships, as shipping lines stop chasing economies of scale, in favour of more flexible volume control.

By deploying multiple services with slightly smaller vessels on a number of trade lanes, carriers and carrier alliances could blank one or two weekly sailings without losing the significant market share that would accompany the blanking of the larger vessels.

Metro work with all the major shipping lines and three alliances, negotiating space and volume agreements on all major trade routes, serving every primary gateway, which means our shippers have the security of access to the widest selection of services, competitive secured rates and space.

In 2021 the smart shipper will recognise the benefit of working with a trusted partner like Metro, to receive the best service in a challenging market, while eradicating risk from their supply chain, by expanding the numbers of carriers and services they have access to.

For further details, as always, contact your metro manager who will be delighted to discuss the current market situation and your own aspirations and supply chain strategy that will work for you in 2021 and beyond.