Emphasis should be less on rates and more on meeting customers’ rising needs and expectations
LONG BEACH: Three shipping economists told the 18th Annual TPM Conference that vessel supply and demand are moving in carriers’ favor, but one said the emphasis should be less on rates and more on meeting customers’ rising needs and expectations.
“This focus on freight rates is not getting us anywhere. And the reason it is not getting anywhere is because we’re not delivering a good enough product to service the customer,” said Graham Slack, Chief Economist at Maersk Group.
Container shipping supply and demand appear to be moving closer toward balance, according to Slack; Yin Ming, Deputy Secretary-General and Professor at Shanghai Maritime University; and Peter Sand,
Chief Shipping analyst at Bimco, the Baltic International Maritime Cooperation Organization. While global growth forecasts show demand and supply balancing out or favoring carriers, industry analyst Alphaliner projects an increase of 8 to 9 percent in trans-Pacific capacity, outpacing demand forecasts of about 5 to 6 percent.
Sand cited the International Monetary Fund’s recent increase of its forecast GDP growth rates for next year to 3.9 percent, and said there are signs that container shipping demand will grow at a faster multiple of global GDP. “If we’re going to see higher freight rates, we certainly need to see demand growth outstrip supply growth,” Sand said.
Slack said rising capital spending is driving forecasts of increased growth during the next two years, and that several widely watched analysts are forecasting “pretty robust” global GDP growth of 4 to 5 percent. He said Maersk is more cautious, with a forecast of 2 to 4 percent. He said levels of idle ships and vessel construction orders are low.
“As we move into 2019, the fundamentals for the industry are beginning to improve.”
But Slack said that while discussion of supply and demand is important, “this is the same discussion we’ve been having for the last 10 if not 20 years, and it’s unclear whether this discussion has actually led to better industry offerings that meet our customer needs.”
Slack said container lines have failed to meet their cost of capital, resulting in a “very fragile” industry that has been unable to help customers reduce costs through reduced inventory and improved reliability. “This is not a good outcome for anybody — not us, and not the customer. In short, you might say we’ve been focusing too much on freight rates and too little on service,” he said.
“We can talk about mega-vessels, but we need to think about what does that do for the customer,” Slack continued.
“And need to think about it not just in lowering costs on the ocean but what it means in true end-to-end costs for the customer. That’s the way we’ll drive value in the container industry, not discussing demand and supply.”