The horizon is finally starting to look a little less stormy for ocean carriers. Last year, the container shipping market grew by 5.7% and marked the largest single year gain since 2009. Ocean freight rates saw modest overall gains, but most importantly stability, as carriers continue to consolidate through mergers and expanded alliances. After consecutive years of massive losses, industry analysts estimate that the industry will post a collective profit (yes, profit) of $7 billion. New capacity continues to outpace anticipated demand, however the gap is starting to close buoyed by an improving global economy.
The largest ocean carriers appear to be reaching parity through consolidation and the gap between the biggest carriers and the smallest will continue to grow. This past year we saw the mergers of OOCL into COSCO, Hamburg Süd into Maersk, along with the merger of Japanese carriers NYK, MOL and K-Line into a new carrier, Ocean Network Express (ONE). We do not expect any additional mergers to take place in the coming year and smaller, niche carriers will continue to perform well. However, industry analysts are keeping close eyes on mid-market players Yang Ming Line and Hyundai Merchant Marine as possible acquisition targets for larger carriers. There are no signs pointing to the imminent demise of any major ocean carrier.
While we can expect relatively fair winds for the ocean freight market in 2018, we will see extreme challenges in container drayage. The new electronic logging device (ELD) mandate on top of hours-of-service rules will redefine supply chains across the country. Inland container yards should be integrated into supply chains wherever feasible to hedge against anticipated capacity shortages and delays at marine gateways. Several carriers are expanding inland barge offerings, such as CMA’s on the Mississippi River service to Memphis, and these options are also worth a strong look. They can provide more flexibility with free time and less demurrage exposure than a typical rail ramp.
Container drayage is going to be a sellers’ market this year. Expect to see increases in dray rates in the range of up to 20% and also expect to rely less on “all-in” rates from ocean carriers. Make sure you are fostering a partnership directly with a drayage provider, brokerage or forwarder that can cover your inland delivery requirements. Smart shippers are working to make their business more attractive and position themselves as “shippers of choice” in both compensatory rate structures, reliable delivery scheduling and even onsite perks for drivers. Solid relationships with reliable drayage providers will be more important than ever in the execution of the supply chain in 2018.
Technology in shipping is set to make major strides in 2018 with both Maersk and ZIM leading the implementation of blockchain technology into the supply chain. Blockchain is the underlying technology that allows for the transfer of value over the internet without the need to have a third party validate the transaction. It is the technology upon which Bitcoin was built, and promises to have wide ranging application to international trade. ZIM’s system will work as a secure distributed database, where all trading partners have a copy of the digital ledgers associated with the transaction and “can issue, transfer, endorse and manage shipping and trade related documents.” Imagine the efficiencies of a truly paperless environment in the international exchange of goods: traditional negotiable bills of lading will quickly become obsolete if blockchain technology gains traction.
Every year I have closed my outlook highlighting the importance of seeking partnerships with supply chain service providers. Treating any supply chain service simply as a commodity, whether ocean freight, customs brokerage or drayage, is a dangerous game to play. While shippers should always be mindful of cost, they need to be willing to pay for reliable, professional service at compensatory levels. Shippers that seek partnerships will find that their providers are willing to go the extra mile to ensure the first mile, the final mile, and everything that transpires in between, is executed in the most efficient manner possible.