News / More vertical integration means fewer 'archaic processes' for shipping

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This year’s freight rate windfall enjoyed by shipping lines will drive technological change within the industry with new, cleaner ships, but also the fundamentals of the business will change as documentation and administrative processes undergo a technological transformation.

Experts at last Thursday’s JOC Global Shipping Outlook conference anticipated that cash-rich shipowners would be empowered to overhaul industry processes and grab more market share over the coming years.

Recent weeks have already seen newly debt-free shipping lines snatch-up air cargo and freight forwarding assets, and IHS Markit expects this to continue.

“You will still see ordering, and some of those windfalls will go towards assets, because ships are needed that take care of the carbon emissions,” said Rahul Kapoor, global head, commodity analytics & research at Maritime & Trade, IHS Markit.

“But you can only fund as many ships as are required… and a bigger slice will go towards technology. Some of those archaic processes and documentation that we’ve seen in that industry… they will start to go.

“If this cycle continues and the cash reserves continue to build, I will not be surprised to see carriers again acquiring terminal assets; we’ve started seeing bigger ocean carriers going to complementary logistic assets – air freight, freight forwarders.

“I don’t expect them to give out major dividends or do cash buybacks – the industry is not known for that. Right now, they’re struggling with… the current supply chain mess. But in the coming months, most of them will be totally debt-free. We are talking about a major turnaround for the industry in 18 months or so.”

The bumper year of 2021 will be a peak year for box demand before correcting through 2022, IHS Markit anticipates, as vaccination rollouts and easing lockdown restrictions precipitate a consumer spending shift from goods to services.

“US container demand has made up for all the demand lost at the height of Covid [March-July 2020] and then added some more. We’re talking the stimulus cheques… this is similar to what we saw after the global financial crisis… but over a much shorter timespan. Essentially, decades of demand packed into one explosive 18-month period.”

The data shows a 45% increase in average call sizes at the US west coast, which, Mr Kapoor said, was driving congestion and distorting the market.

“LA/Long Beach combined… the average is 7,000 moves per call, and compared with 4,000 moves per call pre-pandemic – close to an 80% growth. Since the end of 2020, volume demand growth has been the primary driver. Ports have limited capacity to deal with these additional moves. Cranes, labour issues and limited yard and intermodal capacity. Congestion continues to plague container ports and we see little sign of that abating any time soon.”

Despite his prediction that a large amount of money would be spent on technology and complementary logistics assets, Mr Kapoor predicted fleet growth would temper freight rate excesses, as well.

“A real mountain of fleet growth is coming in 2023,” he said. “The carriers have used some of that profit windfall to order these vessels. So that will be positive, in terms of easing those capacity stresses we are seeing. We expect freight rates to have peaked this year.”