Big challenges for midsize container lines

Big challenges for midsize container lines

While the container shipping fundamentals are improving, 2019 holds major challenges for ocean carriers, from the most costly environmental mandate in industry history to heightened geopolitical tension spilling into trade. Heading into the new year, the core role of container shipping to move goods in a timely manner between points A and B is sputtering during peak season. Ocean reliability in September fell to the mid-50 percent level on Asia-Europe and into the 40 percent range, according to SeaIntelligence. Facing a return to a 2018 loss after the first industrywide profit (approximately $7 billion) in six years, carriers aren’t rushing to spend more money on fuel to speed up vessels when they hit weather and port-related delays.

The challenges can be even more acute for midsize carriers such as Yang Ming, requiring even more prescience and agility. The eighth-largest container line in terms of deployed capacity, according to Alphaliner, is taking a varied approach to the low-sulfur mandate by testing out scrubbers and watching crude oil prices closely. Most recently, Yang Ming and six of the largest carriers and terminal operators formed a blockchain consortium. Separately, Yang Ming is looking to expand its use of chatbots beyond Taiwan. 

The outlook for the supply-to-demand ratio is improving, CEO and Chairman Bronson Hsieh said in an interview with JOC.com in Taipei in October. That’s given him optimism, as he expressed when Yang Ming reported a second-quarter net loss of 3.81 billion Taiwan dollars ($124 million), due to lower average freight rates and higher bunker fuel prices. He cited Alphaliner’s forecast that demand will increase 4.3 percent next year versus 2018, while capacity will expand 3.9 percent in the same period.

Bunker fuel prices will only rise when the International Maritime Organization’s low-sulfur mandate takes effect Jan. 1, 2020. Noting the uncertainty on fuel prices, Hsieh said Yang Ming will have scrubbers deployed on five of the 10 12,000-TEU ships that it will be chartering and is still determining whether the rest will have scrubbers or burn low-sulfur fuel.

“Everyone should share benefits so everyone should share this cost,” Hsieh said in an interview at Yang Ming’s Taiwan headquarters.

The cost of the container shipping industry meeting the mandate is between $13 billion and $15.7 billion, according to various analyst estimates. Airlines can easily pass on higher jet fuel prices to customers, but carriers don’t have that luxury, he said. Indeed, carriers have an unremarkable record of being able to recoup higher costs, though, when faced with deep losses such as in 2009, when they reacted sharply with capacity withdrawals.

Tariffs tensions

Hsieh doesn’t expect Yang Ming to cut capacity between the United States and mainland China, even if volume declines more than usual in early 2019, due to the current front-loading of US imports to beat tariffs. The tit-for-tat tariffs, he said, will only accelerate the shift of manufacturing from mainland China to Southeast Asia, which he predicted seven years ago at TPM Asia.

“I don’t think the factories will move overnight. [Yang Ming] will not reduce the space from [mainland] China and United States but eventually [we] will add more space to Southeast Asia,” Hsieh said.

Like other carriers, Yang Ming is looking for ways to reduce cost and improve customer service. That’s meant partnering with CMA CGM, Cosco Shipping (and subsidiary OOCL), and Evergreen Marine, none of which are Yang Ming’s alliance partners — in a blockchain consortium, based on CargoSmart technology and supported by Oracle Cloud Blockchain Service. In fact, Yang Ming has already completed a blockchain proof of concept but not a complete process. The case allowed the payments tied to shipments by a plastics and electronic material supplier to be processed on a secured, decentralized, and encrypted shared ledger platform. Although the test lacked all the parties involved in shipment, ranging from the forwarder to the bank of destination, that are needed for true blockchain, Hsieh said it showed a way to save time and better protect financial information.

Since launching a chatbot service in Taiwan in May 2017, Yang Ming has found that the instant message application enables shippers, customs brokers, and truckers to get faster responses to their questions than via a traditional website. The chatbots, powered by artificial intelligence, can provide various functions, ranging from cargo tracking to responding to detention/demurrage enquiries. Shippers, for example, can determine when their container yard cut-off is by pressing the “CY/CFS cut-off date” function and sending the container number required to check its cut-off date. It’s agile, like Yang Ming and fellow carriers must be amid higher volatility, both in shipping and the broader global economy, but not yet prescient.

Contact Mark Szakonyi at mark.szakonyi@ihsmarkit.com and follow him on Twitter: @szakonyi_joc.

Comments

No mention of the significant subsidies from the government of Taiwan, without which Yang Ming would be where?