More of the same, and then some

THE START OF 2019 is sending signals that we may have slower trade growth than anticipated, present-
ing challenges to all. The National Retail Federation says it expects a decline in year-over-year growth, the
World Bank is sending signals that the global economy is slowing, with China leading the way. This isn’t great news for any sector of global trade. Carriers are already smarting from a less-than-spectacular 2018 and face increased capacity being delivered in 2019. Shippers, some of whom felt the sting of unusually high spot market rates during the last couple of months of 2018, face what could be increased tariffs after March 1 when the US and China end their trade talks. Carriers also are seeking increased rates and anticipate a jump in fuel costs related to the International Maritime Organization’s low-sulfur fuel mandate that takes effect Jan. 1, 2020.  Balancing these conditions will be a challenge to all involved in ocean shipping, with shippers and carriers working on plans to keep their economic equilibrium, trying
to meet budgets most set months ago before the unfavorable news of recent events.

Some of the drama started playing out in December as carriers met with larger shippers to begin the 2019-2020 contract negotiations. Carriers must get back on track to make money as they did in 2017 after six years of losses, having failed to do so in 2018 because of decisions made early in the year, decisions that will impact them through April. Managing capacity, they were able to recover a bit in the spot market late in 2018. Carriers also caught a break with oil prices declining in late 2018. But the larger shippers have a deal in hand lasting almost four more months, and while they recognize conditions better than most, they aren’t in a mood to just accept increases because carriers aren’t making money.

So negotiations for the 2019-2020 contracts will be difficult. Carriers were able to get spot rates up by more than double some of the service contract levels. But facing the large service contract shippers who have low rates and asking for in- creases has never been an easy task for carriers; volumes available seem
to bring out a gift-giving reaction.  With the low-sulfur mandate beginning in January 2020, the new contracts will run four months through April 2020, so whatever is agreed to this year will haunt carriers if they fail to act in the next round of contract talks.

Early indications are there may be increases of a relatively modest level but a fuel surcharge question remains. The thinking is there will be a prolonged negotiating period — nothing new — but with far more volume involved, one strategy may be, “let them see that the ships won’t be full, they’ll be more reasonable.” None of this is new; conditions of the day regularly alter the issues and outcomes. The basic challenges rarely change. Supply and demand ratios play the largest role in rate levels.

Last year, this had a big impact on the spot market, causing wide variances in what shippers paid to move their cargoes. We have 11 months to watch this play out for 2019. The continuing decline in reliability has both shippers and carriers pursuing improved services. Both sides continue to talk about it but do little to correct it. Carriers refuse to increase vessel speeds when well behind in their schedules, and some have pulled sailings with little or no advance notice. Shippers continue to have high levels of no-shows on bookings, with few providing accurate forecasts to carriers on a consistent and timely basis.

There are those who genuinely care about and work toward improving their side of the equation, recognizing that they help themselves by being cooperative. Unfortunately, they are in the minority, a great deal of that relating to who is booking the cargo — the cargo interests or third parties.  Many third parties are vigilant and cooperative, but there are hundreds of these entities who attract cargo one way — price. To them, service levels are of little consequence.

Issues such as properly declaring what’s in a container to ensure safe stowage to avoid damaging results also isn’t high on their priority list.  Look closely at the number of incidents of fires onboard vessels and the real causes.

Only time will tell the outcome of the many challenges the industry faces again this year.