Rolling Markets

Rolling Markets

It is a weekly if not daily occurrence: Someone who has spent their career in container shipping or logistics says he or she has never experienced conditions worse, uncertain or more challenging than they are today. The manager knows neither when it will end nor what the industry will look like if and when conditions return to anything approaching normalcy.

I would quote all of them by name if allowed, but none are willing to risk offending carriers at a time when the ship lines hold all the cards. Most simply want to go off-the-record, but sometimes it’s a bit more urgent: “If you quote me, I’m going to send a hit man after you,” one shipping manager said.

Don’t worry, folks, I’ve never given up a source, even without the colorful threats. But the pained comments over shipping challenges get to the heart of the situation: The capacity squeeze in the trans-Pacific that began in December has not let up.

Most say it has gotten worse. Cargo is piling up in consolidation centers in Asia as it is diverted there to keep factories from overflowing with finished goods. Yet once there awaiting onward transit, shipments are bottled up not only by lack of space on ships as well as in the air, but also by a lack of trucks to move cargo to outbound ports as well as a growing, potentially structural scarcity of containers themselves.

Containers not returning to Asia fast enough to absorb the demand. Container factories have been silent for more than a year. And two-way trade in once-imbalanced markets is effectively keeping containers out of the market for weeks between the times they are loaded and discharged. In addition, the slow-steaming operations of carriers eat up more container capacity, leaving boxes on the ocean for longer periods of time.

Things aren’t improving. No one I spoke to recently has felt the impact of tonnage being added to the market; “sweeper ships” are coming along from time to time, but in general there has been no letup in the scarcity of space.

Reports in The Journal of Commerce and other publications suggest carriers may be hurting themselves by reintroducing too much capacity too quickly. Ultimately, that may prove to be true. But, at least in the trans-Pacific, the effect has not yet been felt.

As of early June, five months into the new year and with the peak season not far off, it’s still a seller’s market.

One result of that is the sales process is working in reverse. If carriers typically must sell the shippers and non-vessel-operating common carriers, it’s now the buyers wooing the carriers. Everyone is scrambling to find space, and carriers in some cases are letting it go to the highest bidder, effectively conducting auctions of their available capacity while letting other cargo roll to the next ship, or the next, or the next.

I have heard stories of cargo being rolled two to three times when typically in a busy season it might get rolled just once. NVOs are actively seeking to co-load with other NVOs who might have obtained space. I heard of a carrier demanding a “deadfreight” fee, telling shippers they will be charged several hundred dollars if cargo doesn’t show up as booked. My guess is the cargo showed up.

So what is a shipper to do? Though unpleasant, at this point, there is little choice but to pay the price. Money is what it takes to get cargo moving. It’s a lot easier to explain higher costs than lost revenue. Merchandise sitting in Asia does no one any good, and although rates might seem exorbitant, space can be found at the right price.

None of this is normal. It’s a bizarre market where the old rules no longer apply but no new rules have replaced them. And no one seems to know when order will return. People say we are experiencing an industry in the throes of transformation, but what is it transforming to?

At one level, what is happening is the raw and basic functioning of a free market. Carriers have the upper hand and are capitalizing, a reverse of the situation last year. Some in the market are bound to look at it differently, arguing that what is happening is not the result of market reality but the result of collusion by sellers that have artificially steered the market to their own benefit.

But were carriers colluding last year as rates skidded to record lows? Were they deviously plotting the market of today? If the government responds by abolishing antitrust immunity, do shippers really imagine things will shift in their favor? Is that what happened in the Asia-Europe trade lanes, where rates fell even faster and further than they did in the trans-Pacific after the abolition of the block exemption?

The issue of antitrust immunity in the U.S. is a convenient target, but it really is a red herring. Markets go where they go, and either you’re well-positioned or you’re not.

Peter Tirschwell is senior vice president for strategy at UBM Global Trade. Contact him at ptirschwell@joc.com.