With a raging pandemic and cargo volumes dipping in the first half of 2020, the outlook seemed bleak for liner operators. Then, almost magically, the lights were switched on!
Retailers rushed to replenish dwindling inventory and manufacturing plants in China and elsewhere worked overtime to meet demand. This time, the carriers had a new appreciation for the word “restraint,” as opposed to their normal tendency to shoot themselves in the foot. Carrier consolidation over the past few years, coupled with three stable alliances, undoubtedly played a positive role.
Carriers managed capacity judiciously and didn’t lose much time in increasing rates in rapid succession, doubling and even or tripling rates compared to the same period in 2019. The trans-Pacific trade, often a quagmire for many carriers, turned into a gold mine.
What looked like a perfect storm when the pandemic unfolded turned into a pretty rainbow with a likely booty of around $ 11 billion at the end of it. Will such levels of profitability carry through to 2021?
The New Year is likely to start quietly with volumes ebbing somewhat compared to the fourth quarter of 2020 , which saw a peak season that seemingly never ended. The continuing need for PPE stocks should offset some of the softness in popular retail items in the early months of 2021. With only a minor uptick in new capacity and no predictable reason for the decline in consumer demand despite the second and third waves of COVID-19, 2021 should offer carriers a scenario that is similar to what they experienced during the second half of the preceding year. Contract rates will be set from a much higher threshold, which should offset any weakening of spot market rates.
For governments that propped up national liner operators such as HMM ( South Korea), Yang Ming ( Taiwan), PIL (Singapore), and CMA CGM (via a relatively less impactful loan guarantee by France), their intervention would appear to be vindicated. Similarly, liner operators that in the recent past had undertaken mergers and acquisitions — Maersk/Hamburg Sud, COSCO/CSCL/OOCL, Hapag Lloyd/CSAV/UASC — must feel that these decisions are paying dividends.
A word of caution to the liner industry — don’t push your luck too far — the antitrust watchdogs have not exactly gone to sleep. They should also resist the penchant to nickel-and-dime their customers. That could unleash a concerted pushback.
A strong liner industry is paramount to sustain the world’s supply chain. Profitability is key.
The operators and their alliances must, however, step up to improve service quality compared to 2020. As the iconic Gucci slogan says, “Quality is remembered long after the price is forgotten.”