How much has really changed, and how much is likely to change? Those are timely questions to ask as 2018 begins, following the wild ride of the top container carriers shrinking by eight in two years and heralding the potential — but still only that — for a different industry to emerge. Dare we envision one that overcomes or at least restrains its self-destructive instincts and joins the ranks of those devoted to creating value for customers?
For many who have watched carriers engage in irrational behavior for decades, nothing has changed despite consolidation, and nothing will ever change. The cultures, agendas and governance of major carriers are so divergent, and fear of antitrust authorities so great, that the inevitable decisions, such as those to order much larger ships, will be those that optimize the individual carrier at the expense of the industry and its customers.
But whether they can break the cycle, several carriers through recent statements and actions are signaling they see the potential for a different future and are acting to achieve it. If the moment to rethink the future isn’t right now, when is it?
“The fundamentals with respect to the consolidation make the game maybe a little bit different than what we have seen in the past,” Maersk Chief Commercial Officer Vincent Clerc told Bloomberg in December.
Remarkably different signals are coming from Maersk, the industry leader in deployed capacity. The biggest of all was the decision in late 2016 to jettison energy and bet the company’s future on transportation and logistics. This was either folly or revealing of a vision for a future different from one defined by cyclicality and cost cutting as the only controllable factor to positively influence profit.
Among the very different initiatives (for a container line) rolled out or further defined last year are a foray into trade finance, the launch by Damco of a digital forwarder called Twill, and terminal APM Terminals directly selling services to beneficial cargo owners (BCOs). As Clerc told Bloomberg, “we want to work a lot more on offering a wider array of products and on developing outside just the simply ocean product, and that is really where our focus is right now.”
Maersk isn’t stopping there. Last year, according to several forwarders, the company started limiting, depending on the scenario, the availability of long-term rates and discounted rates it provides to forwarders willing to identify their underlying customer. That may signal under its strategy to become an integrator of container logistics, Maersk wants to control more shipper business directly rather than through forwarders, whose share of the overall market has been growing steadily and who to the consternation of carriers have more or less always managed to make money.
While other carriers may not see eye to eye with Maersk on the forwarder issue, they are still thinking about what a potentially different future might look like. Hapag-Lloyd hired consultant McKinsey to evaluate its position in the market, who it should be seeing as its competition, and what markets it should be serving. Ocean Network Express, or ONE, will be a new entity formed from the merger of three Japanese container lines, with a stronger value proposition for shippers, as the CEO Jeremy Nixon told TPM Asia in October.
And even on what is possibly the most standout example of an industry that doesn’t have its act together — the lack of enforceability in contracts — progress is being made. The New York Shipping Exchange (NYSHEX), which has investment backing of Hapag-Lloyd and CMA CGM among others, cleared a major regulatory hurdle in December in pursuit of its goal of creating a viable slot exchange with penalties for non-performance whether by the shipper or carrier.
The timing may be favorable for carriers to build on the consolidation to create a more favorable environment in regard to enforceability and other items on their agenda. Despite mega-ship orders by CMA CGM and Mediterranean Shipping Co. in late 2017, the first orders of ships greater than 20,000 TEUs in nearly two years, and precipitous late-year drop in spot rates, carriers believe supply and demand is gradually shifting in their favor. Containerized trade in 2017 grew at the strongest pace in about a decade, absorbing much of the idle fleet; the orderbook as a percentage of the existing fleet despite the MSC and CMA CGM orders is 20 percent, just 3 percent above last year, when the metric hit its lowest level since 2002, according to IHS Markit.
Some forwarders believe the Maersk signals on named account rates are just an early example of how carriers will seek to leverage stronger fundamentals to their advantage. “The fundamentals for the industry have improved greatly in 2017,” Clerc told Bloomberg.
But all that said, the legacy of self-destructive behavior, particularly in regard to pricing, haunts the industry. Carriers have little track record of self-policing themselves in pursuit of overall industry gains. That may be why, as Clerc said, “We’ll have to see if this time is different or not.”