Shippers and NVOs have been largely unsympathetic about the carriers’ service pricing dilemma, with many pointing out that the ocean shipping industry brought this on itself. The global economy similarly wasn’t any boon to many shippers’ businesses, so low rates appeared all the more justified.
Besides, many shippers and NVOs vividly recall how the liner carriers six years ago abruptly slashed their container capacity, resulting in a rapid rise in rates and an ensuing struggle to get boxes on ships.
During the past two years, with some liner carriers suffering terrible financial losses and scrambling to realign their businesses, shippers and NVOs have continued to enjoy low freight rates. Attempts by the carriers to make general rate increases stick have failed miserably.
But the good times for shippers and NVOs may be ending quickly, and they’re now facing the potential for severe and costly disruptive customer service from the container carriers before the end of this year.
The downward financial pressure on the liner trade over the past 12 months has caught up with the industry, as more carriers seek out mergers and acquisitions, tighten capacity and cancel new ship orders, or teeter on bankruptcy, such as in the recent case of South Korea’s Hanjin Shipping.
At the start of September, many shippers and NVOs were already seeing the fallout from Hanjin filing for court receivership in Korea, scrambling to terminate their dealings with the beleaguered carrier, secure the release of their cargo trapped on ships seized by creditors, and paying higher spot rates to get those same containers moved by other carriers.
If there’s a lesson to be learned from this period of non-compensatory container freight rates for the carriers, it’s that there will always be some form of payback, virtually wiping away those prior low-rate benefits, as the case of Hanjin’s collapse shows.
In the next several years, as container capacity is brought more in line with market demand, shippers and NVOs should work with their carriers to reach a level of compensatory—perhaps even profitable—rates. In theory, this will help carriers achieve better earnings, improve customer service, and prevent debacles similar to what we have seen at Hanjin.
The Hanjin fallout should also be a turning point in how cargo owners and NVOs approach container shipping at large.
It’s no longer enough to hand off shipments to the carriers, knowing that most of the time they will get to their destination without a problem. Instead, we urge users of container transport to better educate themselves on how the global shipping industry is structured—or entangled—in terms of vessel alliances and service contract management, as well as routinely track the financial health of the liner industry.
In these troubled times in ocean shipping, the saying “knowledge is power” truly applies if you’re a company that strives for supply chain resiliency.