Choppy waters for ocean shipping
What a difference a year makes. In March 2022, ocean freight rates were at record highs, with capacity straining under the weight of historic U.S. import demand. High inventories and economic uncertainty prompted importers to pull back over the summer months, and volumes slowed.
A spectacular rate collapse in the ocean freight market from Asia to the U.S. followed; freight rates are now below pre-pandemic levels on many trades — even below ocean carrier break-even levels — and import demand growth continues to slow.
Shippers and ocean carriers now find themselves in a familiar situation, reminiscent of the pre-2020 years marked by overcapacity and low rates that were favorable to shippers. The carriers, flush from the past two to three years of record profits, have new vessels on order that are expected to contribute to an overall net capacity increase of 8% to 9% globally and a continuation of overcapacity on most trades.
Within the past year, the Ocean Shipping Reform Act and consumer-focused positions taken by the Federal Maritime Commission have contributed to optimism among shippers; the current shipping environment seems, in many ways, more favorable to shippers than any in recent memory.
While the dynamic feels familiar, a variety of risks abound that define a new international shipping landscape. The impacts of COVID-19 disruptions — especially in China — and geopolitical concerns are prompting more shippers to diversify their sourcing where possible and consider near-shoring.
A long-awaited labor contract for U.S. West Coast ports has been under negotiation for a year, with no deal in sight; many shippers have shifted their routings to avoid West Coast uncertainty. Port congestion has improved significantly since volumes have slowed, but the pandemic volume surge revealed infrastructure vulnerabilities that threaten to disrupt supply chains in the future if left unaddressed.
The world’s two largest ocean carriers, Maersk and MSC, announced in January they will wind down their alliance over the next two years, and changes to the other two main shipping alliances, both formed in 2017, are expected to follow. Dissolution of the alliances would likely lead to carrier consolidation in the coming years, meaning even less competition on the supply side. MSC, now the largest and fastest growing global carrier, is positioned to dominate.
Diversification, always important, will play a critical role in the new landscape. Utilizing a variety of logistics providers, sourcing options and routing flexibility will be essential to maintaining a healthy, efficient supply chain. The past few years of supply chain extremes have proven that almost anything is possible and that long-term partnerships are still key to successful global trade.
Rachel Shames is vice president of pricing and procurement at CV International Inc., a freight forwarder, customs broker and non-vessel-operating common carrier headquartered in Norfolk.