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Home Opinion Commentary: Adjusting to a new shipping reality

Commentary: Adjusting to a new shipping reality

Published April 28, 2022 by Rachel Shames

Rachel Shames. Photo courtesy CV International Inc.

Ocean shipping patterns established during the first year of the pandemic have taken root, and it’s time for shippers to adjust strategies for the long term.

That was the takeaway from the first in-person Trans-Pacific Maritime (TPM) Conference in three years, presented in Long Beach, California, in March by IHS Markit Ltd. (now S&P Global Inc.), traditionally the largest annual gathering of ocean shipping industry professionals in the U.S. It’s the same message carriers are communicating through this year’s contract negotiations.

U.S. import demand remains strong, and most retailers are forecasting higher volumes for 2022. Severe port and inland terminal congestion persists in the U.S. and abroad. Trucker, chassis and warehouse shortages plague shippers of all sizes. Effective ocean vessel capacity is restricted by carriers’ inability to maintain regular schedules in this highly congested market. West Coast port labor contract negotiations are ongoing, and there are concerns about a work slowdown that would exacerbate these challenges. Fuel prices are climbing, adding upward pressure to transportation rates that already are at record levels.

Also, there are signs that demand may slow this year. Between high inflation and expected spending shifts from goods to services as pandemic concerns ease, analysts are optimistic that there is some supply chain relief on the horizon.

Container carriers have new vessel deliveries planned for 2023-24, which will bring a healthy injection of ocean capacity to the market. There are more independent, niche carriers in the ocean market than there have been in years, translating to more competition and options for shippers. A new task force run by the Department of Justice and the Federal Maritime Commission, meanwhile, is monitoring and investigating claims of anticompetitive behavior and unreasonable pricing by ocean carriers.

However, the severity of congestion and shortages in the system, especially landside capacity, threatens to counterbalance a drop-off in demand. A looming deadline for new decarbonization initiatives, the International Maritime Organization 2023 rules set to lower emissions, is expected to force a portion of the existing global ocean capacity out of rotation next year.

Instability is widely expected to persist throughout 2022-23 and may well characterize the industry for the foreseeable future. Shippers are advised to plan and act now for the current market reality, not to wait for the tide to turn. The pendulum will swing eventually, but it’s highly unlikely to land at the far opposite end of the spectrum where the industry sat in the 2010s when shippers held all the leverage.

Carriers have dramatically shifted their approach to contracting over the last year. There is far less fixed-rate and space allocation in play; most freight will move on variable rates at spot at premium levels, translating to even less predictability for shippers. Carriers are reducing the size of long-term contracts and deselecting less desirable customers entirely. Shippers must position themselves as high quality partners — shippers of choice — and seek out arrangements that benefit both sides equally. A variety of long-term, well-nurtured relationships will be necessary to keep cargo moving; shippers must have a diverse port-folio of ocean carriers, forwarders and non-vessel operating common carriers (NVOCC); long-term and spot-rate agreements, and multiple trucker and warehouse partners.

The 2022 TPM conference theme, “Relationships Matter,” is critical advice for shippers navigating this new market. Those who embrace strategies that provide their companies with as much reliable logistics service as possible will prevail over those who prioritize chasing the lowest rate for short-term gains. Quality partnerships have never been more important to the execution of a successful supply chain. ν

Rachel Shames is director of pricing and procurement at CV International Inc., a freight forwarder, customs broker and non-vessel-operating common carrier headquartered in Norfolk.

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