Top 40 Container Carriers

As a compromise to the failed experience building proposal, the IMO agreed to boost efforts to lessen the mandate’s impact on the market.

The likelihood of significantly increased fuel costs has carriers girding themselves for an existential moment — one where the consequence of a failure to recoup the additional costs could be severe.

Many questions remain concerning the low-sulfur rule that goes into effect on Jan. 1, 2020: how best to comply, how to manage fuel supply after IMO 2020, how to estimate changes in fuel costs, and how to plan for enforcement.

Maersk's announcement is the latest action in its effort to reinvent itself as an integrated container transport and logistics provider.

The ocean carrier — which launched in April and comprises “K” Line, MOL, and NYK Line — said in its half-year earnings report that it collectively expects to lose $310 million in the first half of the year, on revenue of $5.03 billion.

The Geneva-based carrier said it will roll out the “smart” containers in the coming months, enabling users to follow the movement of containers in real time through the Internet of Things.

Among the major unknowns on the minds of ocean carrier executives: will the low-sulfur fuel supply be adequate? How high will fuel prices go? How will the new rule be enforced?

Spot rates in the eastbound Pacific show no sign of softening, and shippers may end up paying high spot rates through the end of the year, if imports remain strong. New US tariffs beginning Jan. 1 definitely have something to do with the above.

CMA CGM’s investment in CEVA is consistent with a customer-centric vision announced in March to move away from commodity container shipping and increasingly tailor end-to-end logistics solutions for customers.

Many shippers have created their own bunker adjustment factors (BAFs), but smaller beneficial cargo owners typically have to accept the BAFs proposed by ocean carriers. However, widespread distrust of the carrier fuel surcharge mechanism may have the effect of pushing more shippers towards coming up with their own BAF formula to have greater control of a process.

While Loadsmart is far from the only startup to take on the idea of automating certain parts of the truck brokerage business — Convoy, Transfix, and Uber Freight are the most notable names in this movement — the former has been on a different growth path.

The Eagle GO Guaranteed Service — targeting shippers willing to pay premium rates for a faster and guaranteed service that provides a complete refund if the ocean carrier fails to meet the delivery date — will expand from 29 Asia ports to 150 Asia and Middle East ports.

As uncertain as trans-Pacific rates have been, they are up 56 percent to the West Coast and 67 percent to the East Coast, compared with early Oct. 2017. However, more price volatility is anticipated as the peak season ends, importers prepare for the Chinese New Year, and proposed 25 percent Trump administration tariffs take effect on Jan. 1.

A survey conducted by global shipping consultancy Drewry found considerable unease among global shippers and forwarders ahead of the low-sulfur fuel implementation. Concern was expressed by respondents about ocean carriers’ methods of fuel cost recovery with more than half, 56 percent, stating that they did not consider their service providers’ existing approaches as either fair or transparent.

The ocean carrier found that existing rules regarding the stowage of dangerous goods cargoes, which create their own oxygen and can’t be extinguished using standard carbon dioxide-based on-board firefighting equipment, to be inadequate and has implemented new procedures across its fleet.

The new bunker fuel adjustment factors will provide more insight concerning whether ocean carriers can recoup what they argue are increased operational costs for bunker fuel and for meeting the Jan. 1, 2020, low-sulfur mandate.

The focus now turns to how dramatic the post-peak season decline will be, and if it will take place earlier than normal after shippers front-loaded their supply chains to avoid US tariffs.

Estimates on the cost of the container shipping industry meeting the mandate range from $5 billion to tens of billions of dollars, but ocean carriers are uniform regarding one aspect of this substantially higher cost.

Extra-loaders have made their presence felt, but is that extra capacity capable of ending the escalation in trans-Pacific spot rates long term?

One overriding factor is underpinning the sailing cancellations.

Initial integration problems of Ocean Network Express had an impact on the first-half share of US trade, both exports and imports, carried by the Top 5 US trade carriers.

As with other ocean carriers, rising bunker fuel prices weighed on CMA CGM’s second-quarter results. Even so, its CEO and chairman remained positive regarding 2018’s second half, citing the rise in freight rates and sustained volumes, in addition to the quality of its service offering.

Its status may change in the future, but at least for now, instant pricing is a bit of a two-edged sword for ocean carriers.

Improving market fundamentals come at a time of mounting uncertainty, clouding the container shipping outlook and standing in the way of carrier profitability.

Higher-than-usual fuel prices and tit-for-tat tariffs have exacerbated the chaos on the eastbound trans-Pacific this peak season, but the problem started earlier this year, and there is one causal factor as the source of the problem.

Sailing withdrawal announcements on trades between Asia, North Europe, and the Mediterranean are beginning to flow in for the slow season, as ocean carriers implement actions to rebound from first-half losses. Left unresolved, however, is whether carriers will cut capacity like they did on the trans-Pacific during the US ocean peak season.

Zim Integrated Shipping Services’ report is another stark data point concerning container shipping’s more-subdued outlook at mid-2018. Volume and revenue are rising, but there is concern about the firmness of rates, as well an inability to pass along/recover rising costs.

Hyundai Merchant Marine, which recently announced its withdrawal from the Trans-Atlantic trade, said it expects higher freight rates and load factors through the third-quarter peak season but cautioned cargo volume is likely to fluctuate due to “changes in [the] international situation.”

Backers of tariffs always promise positive results for the domestic economy. But tariffs were tried by the United States and many other nations in the early stages of the Great Depression in the 1930s. Now how did that work out?

Space is so tight today in the eastbound Pacific that some beneficial cargo owners are paying higher than spot rates to get their shipments on vessels leaving Asia. However, there is a qualifier to that trend shippers should know about.

Unless ocean carriers radically change the paradigm on how they go to market, the Jan. 1, 2020 sulfur cap on bunker fuel will represent another cost that carriers fail to pass on to customers. How many other industries operate this way?

“While we are seeing others in the container ship industry face similar struggles, Yang Ming anticipates a healthier second half, driven by an improving supply and demand ratio,” the ocean carrier said.

“For the remainder of the year, we see a slow but steadily improving market environment, but we recognize that there are still significant geopolitical uncertainties that could influence the market,” said Rolf Habben Jansen, CEO of the world’s fifth-largest ocean carrier.

Maersk said it continues to encounter very high bunker prices, which have not been fully compensated for in freight rates.

Although trade tensions between the United States and the European Union and their impact have been muted so far in 2018, trade stakeholders know that could change dramatically and quickly.

Geopolitical factors have driven outlook revisions by key container shipping stakeholders.

A series of negative factors are lining up to deny ocean carriers a good year.

Like the US airline industry earlier, the global container shipping industry has reached a point where cost cutting and mergers will yield little if any additional value. This is the view of a longtime carrier executive, a Maritime Hall of Fame inductee who argues creating value for customers will characterize the current era, with customer service the first visible change area.

Jacques R. Saade took a regional carrier to a Top 3 global operator over the course of his life.

Several factors, including mega-ships deployed, North Asia congestion, rising bunker fuel prices, and the impact of Trump administration tariffs, are compromising schedule integrity in the trans-Pacific.