Despite the appearance of recovery, the world economy is quite fragile, and container shipping is clearly in the midst of an adjustment period. After the financial industry collapse, all carriers lost money. Although trade volume has rebounded, utilization rates are up, freight rates are recovering and carriers are making profits, it may take several years for carriers to recoup their losses.
Decoupling from the U.S. economy, which wasn’t the case right after the Lehman Brothers shock, is evolving quickly. Differences in recovery and growth are widening among the following groups: key Asian, Middle East, African, and Central and South American countries (Group 1); countries still recovering from the domino Lehman effect (Group 2); and countries where the Lehman shock, or something similar, was created due to pre-existing distorted or unstable economic activities – the U.S., U.K., France, Greece, Italy, Spain, etc. (Group 3).
Countries in Group 1 may make what occasionally seems like excessive investments, but their growth will likely overcome the fragile economy. Carriers will shift their allocation of vessels to Group 1 routes that experience stronger demand. Meanwhile, Group 3 economies will need more time to settle down and return to healthy growth.
Under these scenarios, demands for Group 1 will expand faster. Group 3 also may experience changes. Material supplies will be constrained as demand increases and currency adjustments come into play. The power balance between producers and buyers will affect sourcing for retail markets.
Therefore, shippers may need to be more flexible in terms of sourcing season or lead time, and improve their forecasting. Instead of traditional peaks based on pull-style supply chain, peaks and valleys may become less predictable. Carriers must be quicker and more agile in adjusting the supply of liner space to reduce unnecessary costs (which is eventually a way to reduce shipping prices) or to accommodate additional demand. To gain such benefits, shippers must develop a steady, close partnership with reliable carriers they can depend upon.
Although I’m not sure how rapidly these changes will progress in 2011, I expect that over time, carriers and shippers that succeed in these partnerships under this economic framework will manage their supply chain more efficiently.