News / Capacity crunch mark two a possibility, says MSC chief Toft

The fundamentals that caused the capacity crunch and sent global shipping rates skyrocketing have not changed, leaving the logistics industry and global supply chains susceptible to another economic shock, according to MSC CEO Soren Toft.

He told a packed auditorium at the TPM conference in Long Beach, California, that the major cause of global congestion was the failure of infrastructure in the major importing regions to deal with surging demand.

“It would be naïve to say the ports haven’t learned from the experience,” explained Mr Toft. “But the fundamentals haven’t changed and there is not enough infrastructure in the US and Europe.”

He said the world had seen the importance of the maritime industry and supply chains in keeping trade moving, but now shippers were thinking they need to change their view and shift to a distributive supply chain model.

The US, for example, has already reduced its reliance on China and agreed bilateral deals with other Asian countries, such as India and those in South-east Asia.

“Shippers will spread their sourcing around five, eight or ten locations,” said Mr Toft, and argued that it was uneconomical to bring production back to the mature economies.

However, growth in the global economy is set to reach levels seen in 2021-22 within four years, but the growth of ports is often limited by their geography. For example, the ports of Los Angeles and Long Beach are surrounded by urban development and have no space to expand, but they will need to increase their throughput to meet the coming demand, said Mr Toft.

With shippers shifting cargo from west coast ports, now mainly due to the fear of labour disruption, the fear is that at least some of this cargo will be lost for good. And Mr Toft said: “MSC will call where shippers require it to call; if shippers establish their distribution centres on the east coast, then that’s where we’ll go.”

Turning to the vast expenditure by MSC in both second-hand and newbuild tonnage, Mr Toft said this showed the carrier’s commitment to shipping “now, and in the future”.

However, he noted that the carrier, like its rivals, had enjoyed “a couple of good years”, and had taken the opportunity to invest in its fleet to make it more ‘green’ – the CII (carbon intensity indicator) will mean the company will need to scrap older vessels in the coming years, and slow-steaming will absorb more capacity.

Mr Toft explained that the decision to end the 2M Alliance in 2025 was taken because market conditions over the past 10 years had changed, and Maersk and MSC were on “different trajectories”.

“We will land comfortably on our own two feet, and operate on our own, but we may collaborate with Maersk and others in vessel-sharing agreements,” he added.

However, Mr Toft also warned that the cost of shipping would increase because of the transition from fossil fuels to low- or zero-carbon fuels, adding: “The green future is a more expensive future and those costs will ultimately be passed on to the consumer.”

Decarbonisation is likely to come down to just three fuels – methanol, ammonia and synthetic LNG – which will aid the transition, according to Mr Toft, who said to speed up the transition, a global carbon price was necessary, rather than regional regulation such as Europe’s Emissions Trading System.