Surprise, Surprise, Container Shipping on the Rise! The Buoyant 2020 Case for the Container Freight.

Container Freight Shipment from China to EU

How has Shipping industry faired during the 2020 (the C-19 word)? And why, unlike its usual ‘asset-class’ group siblings like travel, leisure and  amenities players, most down by half in volume and still bleeding, the Container shipping companies ended the Calendar year turning-in healthy prelim (YTD) earnings reports and ‘cautiously optimistic’ 2021 outlook?

Let’s take a typical Ocean freight shipment that is a a full 40ft container, stuffed with general merchandize shipped out of Guangzhou (FOB) into Hamburg. This way  we normalize for commodity, equipment (container) type, and route pricing and this is a baseline proxy for just about any import into EU. Anything on top of  this this benchmark can be whipped out in rough totals by adding a few:

• Equipment type surcharges (refridgerated and specialized containers cost a multiple on the same route),
• Secondary load and discharge locations – both on the out- (precarriage) and in-bound (oncarriage) as legs (and feeder services) get added to the mainhaul / trunk
• Low sulphur, Fuel, Currency, Congestions, Risk etc. etc. add-ons which are all back-to back costs passed on to the customer (the one paying the freight on the Incoterms chart)

for carrier ships sailing shallow waters (ops risk) or insufficient planning (FX, fuels).

But just how on earth, did this industry rise from the ashes in the worst of the Pandemic. They are not big Pharma, or are they in a way? What made 2020 year-end such a financial shine for shipping?

Brush up some backdrop info: There is a conventional wisdom and theory (1) and then there is the new normal (2) – the digital imperative, the technology precursors, Industry 4.0 or 5.0.

The supply-demand dogmatic (‘previous’ school): this one is a mainstay of the Maritime industry. All the shrew and fortunes of the late Shipping dynasties had usually been narrated until recently as supply dynamic. The boom-and-bust rags-to-riches is made for a good story selling, and those that were more often than not on the winning part of the ride made well too. There is a  grain to it, although less so in the recent data world.  

For practical planning of the venturing merchant – keep tabs on capacity, but keep in mind Amazon operates own Airfcraft, and container freight has already become a commodity. Practically, there is no added glamor from the sailing ships legacy romance, at least none showing on  your storefront (webfronts) shelves and warehouses, other than the NY customer greetings theme souvenirs you get from your carrier. And those would be imports too.

Next in line to the fundamentals of the plausible Supply/Demand theory, was the capacity drain in the 10 years of downtime cycle (2010-20). New orders (and newbuilds) were heretic because of the strong oversupply perception, scrapings accelerated to the tune of old-tonnage inefficiencies, costs of idling and environment (all valid) and to top, some consolidation was still active to squeeze final scope, scale, network economies, a utilization boost hopeful) and alternatives solutioning (‘belt’, rail and seabridge) were making news and trials. Meanwhile, (same 10 years into 2020) the demand side stayed strong – consumerism – up, (ecommerce), shorter product updates, cheaper intros and alernatives, more outsourcing to get even cheaper, more offshoring, closed loop.

Let’s get back to our 40’DV CNSZH/CNGUA-HAM example  – that’s Guangzhou/Shenzhen, CN to Hamburg, 40 ft Dry Van that can take up to 12 thousand TV sets so a freight charge of eur 2000 rendering unit freight cost of eur 0.16 before customs duties and onward taxes) and put the freight volume (the de-facto capacity metric) on the upward trend up during the run up into 2H 2020. You get the idea on the imbalance. Will talk prices again?

So the supply-demand fundamentals now clear, and  those were pretty much the same ever since the Tea Clippers era, let’t look into the ‘new’ ways of shipping. The digital ‘imperative’ as coined by the Salesforce’s, President and COO, Bret Teylor, finally started ringing in the quiet quarters of the carrier companies.

Which company did what?

Hapag Lloyd – disciplined, front and center efficiencies gains by digitizing core processes – bookings, pricing, route and yield management, CRM.

Maersk – ever the systems and process player. Maersk was the first one to open online. It pays off for the Danish star now, both as operational excellence (it must be for the measurable efficiency or one over comparable competition), and also as part of the product.

CMA-CGM – costly bump on the systems tier back in May (chk, link) – a textbook quality learning outcome. Shuffles at the teams and ‘working on it’ relations comm signaled ‘taken care’ to stakeholders but more than that, marked ‘priorities’ and a better numerical strategy.

Others, doing technology things.

Data is the new romance for the Shipping industry. The Freight portals (e.g. INTTRA, GTN) and pure web NVOCC (FlexPort, Freightos) became transformational factors and took the part from the pie. The players in this corner are a clear bet on platform economics, which in turn is a counter of the Supply classic. It looks though, the choppy combined platform offerings performance has both the change component but notice the incumbents (take top 5 on the carriers’s list) started porting platforms into their own operations.

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In the next articles, we’ll look at

• how Chinese New Year! is the next yearly challenge to Brake and Make the early Spring shipping season.
• how IT systems started change the conservative business of shipping and
• a few more technical details of the Shipping operations, touching Sales, Finance and Investment functions within the broader supply chain domain 

Stay healthy and stay in touch!

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