In 2016, we witnessed the start of the consolidation in the liner industry. It should not have been a surprise as this was predicated decades ago. The pace, however, was fairly quick, with Cosco-China Shipping finalized, and Hapag-Lloyd-UASC, and APL-CMA CGM, well into the process of integration. Add to that the recent announcement of the three Japanese liner operators to merge the companies into a single liner entity, commencing 2018, plus the collapse of Hanjin, and we have a very different look to the liner industry landscape.
The result of all of this has been the unsustainable losses of the carriers. Despite many attempts at stabilizing rates and cost-cutting efforts, the future is not bright. Even the recent surge of spot market pricing, created by the Hanjin incident was short-lived. Still too much capacity and lots of bad habits exist within liner companies.
Unless there is a significant change in the how the carriers manage the business, not much different can be expected, even with the consolidations. Why? Too much is given away free. Contracts and rate agreements are not enforceable. Bookings are made, and cargo does not show, and no penalties are assessed. The ship sails and revenue opportunities are lost. No-show cargo is now reaching more than 30 percent on some trade lanes, according to reliable sources.
So my view is that the liner industry has to start enforcing contracts — much like the airline model of the non-refundable ticket. You book at a discounted price, pay in advance, show up and get a seat. No show, and you pay. We accept that as consumers. This concept needs to be integrated into carrier and customer relations. Some portion of the ocean freight is paid in advance. The shipper delivers what is booked. The carrier loads the cargo on the intended vessels. If either party fails to deliver as promised, penalties are paid.
Carriers struggle to do this in isolation so the need of third-party entities to manage these transactions, in a fair and transparent way, will have a place. Until the carrier-shipper relationship changes, consolidations still may not bring profitability.
It’s the old adage of, “Do the same thing over and over and expect different results.” The industry can’t keep doing it the same way.