I think we’re rapidly approaching the shipping industry’s “time of departure” that will separate the strong from the weak, the truly serious from the also-rans. I’m reminded of the 1970s and 1980s, when the U.S. rail industry went through a similar cycle: deregulation, amalgamation, removal of routes and track, all leading to higher profitability, increased spending on infrastructure and the emergence of an intermodal market with high growth.
That’s led us to where we are today, with many shippers calling on Congress and anyone who will listen to reinstate some form of regulation to keep rates and services at levels acceptable to them.
That’s a far cry from the 1970s when the shipper mantra was, “Deregulate them, and we’ll be just fine.”
It’s only been a little more than 20 years since the top 20 container carriers controlled 40 percent of global container capacity. Today, the top 20 have 84 percent of global container capacity, and the top three control 34 percent, a rather amazing and dramatic change for a mature industry.
Does this suggest the ocean transportation industry will wind up like the railroads, basically four major carriers? No. First, the ocean container industry is more diverse, with more than 40 operators, and there are few barriers to getting into the business. In the U.S., no one is going to build a new railroad; it can’t be done.
In the ocean container business, carriers have come and gone, but when they do, the ships remain and the owners charter them out, sometimes at attractive rates for a period of time. The foundation of the container shipping industry and the expense it takes to be a significant contender in global markets have changed dramatically. We now see the potential of a core group of carriers, perhaps 10, that would make up maybe 90 percent of global container capacity in the next 10 years.
Can you look at the top 10 now and say, “They are it; they got there and they will stay?” Not at all, for a variety of reasons. Several in the top 10 have apparent financial weaknesses, and in today’s world and the one to come, access to a lot of capital will be necessary to keep up with the big boys.
There are actually few financially strong container carriers today, and as I noted in my last article (“Separation Anxiety,” June 13), Maersk seems to have pulled away from the pack in that regard.
Does that guarantee future success? Nothing guarantees future success, but it doesn’t hurt to have a solid financial base with revenue streams from multiple sources, significant cash reserves and access to capital. But you would have said the same about General Motors 40 or 50 years ago, and look where it wound up.
So who emerges from what we see today to become one of the theoretical 10? I see two paths into that group: the truly efficient and effectively operated companies with solid returns over time, a sustainable cash flow and access to capital, with the ability to withstand the ebbs and flows of global trade; and companies that serve more than one purpose — providing a service and being part of a national global trade strategy.
I see fewer of the former and more of the latter emerging over time, and of the latter, my guess is that some that emerge aren’t major players today.
During my 39 years in the business, I have seen so-called national interest companies come and go, some countries simply choosing not to spend the money to fly the flag. Others have cut back, though kept their feet in the water, realizing their markets are well protected for commercial reasons. I’ve also seen the emergence of new national interest carriers and believe they are here to stay, while believing others will emerge as their countries become a bigger part of the global trade community.
What will that world be like for those involved? A global market that is growing not only in size but also in the number of geographic locations with new producers and new buyers; and with fewer large carriers to deal with. Regional and niche carriers will play a role, just as they always have. But relative to the big stage, fewer actors will be in the scenes, though they’ll have far more size, strength and, at times, power.
It won’t be unlike what we see in today’s U.S. rail industry, but on a much larger global stage.
Gary Ferrulli, a veteran of nearly 40 years in the shipping industry, is director of export carrier relations for non-vessel-operating common carrier Ocean World Lines. He can be contacted at firstname.lastname@example.org. The views expressed here are his own and do not necessarily reflect those of OWL.