Mahim Khanna, a regional director with Dutch firm TBA, has his say.
This year will go down as the year of change in liner shipping, ultra large containerships have been a catalyst for the largest shake up and positive consolidation in the industry. The scalpel has so far fallen on three of the top ten lines of 2015. If we include, UASC (No 18), 11.7% of global teu capacity is affected.
Over the years, liner shipping has become increasingly commoditised. The lines have focused on economies of scale and lower cost, but overall carriers were unable to offer any real differentiation. Countless studies have highlighted commoditisation as the bane of container shipping. Bain Consulting referred to it as “a commoditization stalemate… even in the record earning year of 2010, carriers with higher service levels did not outperform the industry financially because they were not compensated for the higher costs and better value.”
Dr. Martin Stopford speaking at TPM in 2015 asked “whether carriers [will] fulfill the promise of containerisation?”
Hanjin’s disorderly demise will make a huge dent in this ever increasing commoditisation.
Share market volatility is often driven by greed and fear, but when fear strikes, it is panic stations and dramatic. How will the manner of Hanjin’s exit will affect global trade, when all participants are accustomed to a standard, no issues, port-to-port service? How will trade and logistic managers’ respond? Will it hasten the exit of some other lines? Is anyone bold enough to predict what the leaderboard will look like by 2018?
Will mindsets change and focus on differentiation?
Perhaps more important than just more consolidation is whether the lines and their customers are willing or able to change their mindsets?
For the lines, there is now an opportunity to highlight differences in the current risky climate along with working on extending their product beyond the standardised product. NVOCCs have shown the way and new technology provides many opportunities.
It was 1986 whent Peter Drucker in his authoritative work The Frontiers of Management argued that logistics was one of the last frontiers for top management, but alas, over the years, often we have seen shipping and related logistics become more of a procurement exercise focused on the lowest cost of the standardised commodity.
Shipping demand and supply fundamentals will remain skewed for the next two years, (lines may go under, but vessels will mostly remain afloat) it will take some resolve from the lines to turn container shipping into a sustainable business and fulfill the promise of containerisation. Potentially this can benefit not only the shipping lines but all industry participants be it port, terminal, freight and related industries.
In all the hardship to the trading community with reportedly $14bn of cargoes affected, we need to spare a thought for Hanjin’s staff and vessel crew. Indeed, all the hard working ordinary shipping lines’ staff around the world have deserved better than what the industry has seen in the last few years.