Consolidation increases volatility in the liner trades

Consolidation increases volatility in the liner trades

Container analysts SeaIntel have suggested that despite massive consolidation seen in the liner trades in recent years volatility has not dimished. SeaIntel analysed market volatility out of Asia, based on Shanghai’s CCFI rate index which encompasses both contract and spot rate data, over the past 20 years.

In Q1, Q2 and Q4 SeaIntel noted a gradual increase in volatility – most clearly in Q1 and Q2. During the full 20-year period SeaIntel recorded a tripling of the level of rate volatility in Q1 and a doubling in Q2 and Q4. Only Q3 has not seen a marked change in volatility.

“[I]n the path towards consolidation, it becomes increasingly important for the main carriers to maintain and grow their market share – and as the markets become more commoditized, increasingly freight rates become the most important tool with which to accomplish this objective – in turn driving volatility upwards,” SeaIntel suggested in a release.

Commenting on the data, SeaIntel CEO, Alan Murphy said: ”Consolidation is indeed seen as necessary in order to stabilise the markets – but the path leading to a critical mass of consolidation has the counter-intuitive effect of actually destabilising the markets.”

Sam Chambers

Starting out with the Informa Group in 2000 in Hong Kong, Sam Chambers became editor of Maritime Asia magazine as well as East Asia Editor for the world’s oldest newspaper, Lloyd’s List. In 2005 he pursued a freelance career and wrote for a variety of titles including taking on the role of Asia Editor at Seatrade magazine and China correspondent for Supply Chain Asia. His work has also appeared in The Economist, The New York Times, The Sunday Times and The International Herald Tribune.

Related Posts

3 Comments

  1. Andrew Craig-Bennett
    April 14, 2018 at 6:39 pm

    An interesting, and important, finding.

    It is the commoditisation that drives the volatility, of course. Since the commoditisation is not likely to be reversed, the volatility will continue despite the consolidation.

    1. Stefan
      April 15, 2018 at 4:41 pm

      Would then a logical solution be for the carriers to attempt “de-comoditization” by specializing and focused innovation in different segments of the market?

      1. Andrew Craig-Bennett
        April 16, 2018 at 12:52 am

        Yes, and that is just what the carriers try to do, but most customers are not terribly willing to go along with it… they tend to see it, in the words of Adam Smith, as “some contrivance to raise prices”! Customers often prefer the “bells and whistles” to be added by a forwarder, rather than by the Line, as they fear being “locked in”.