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Have container shipping lines simply become too big to fail?
The news today that the 10 largest container carriers now control 84.7% of global shipping capacity – just 0.1% off the all-time record of January 2021 – ought to be deeply concerning to shippers and logistics executives, especially those trying to build the rather ethereal notion of resiliency into their container supply chains.
Talk to shippers and forwarders on the Asia-Europe trades today, for example, who are staring at full bookings for the next month and rapidly escalating freight rates, whether under contract or not, and one overriding theme stands out – a lack of options.
With capacity on the trade effectively fully employed until the end of this month, BCOs are seeing their allocations cut and are going to forwarders in search of alternative capacity.
But most forwarders are, figuratively and literally, in the same boat: they are as constrained as their customers and capacity is incredibly scarce, unless they are prepared to pay above the market rates and possibly veer into loss-making territory.
What makes it even more a carriers’ market today is the alliance system – a large portion of that 84.7% capacity market share is deployed on the main east-west trades as part of one of four liner groupings.
Under anti-cartel regulations, carriers are forbidden from discussing freight rates, but when capacity is as highly utilised as it is currently, any discussions about vessel deployment are intrinsically linked to how pricing evolves.
In today’s market, we all know what would happen if, say, an Asia-Europe service were blanked next week: prices on the remaining sailings would rise, and most likely sharply, while named account allocations could be cut in favour of higher-paying spot rate cargo – and so on…
This is not to directly accuse carriers of market manipulation – all markets have cycles, and we are where we are – but the alliance system was given regulatory approval in the belief it would allow lines to operate in a “stable” market… but with so much of container shipping’s assets in the hands of so few operators – and so much of the world relying on their services – the current surge in rates suggests this market is anything but stable.