Uncertain outlook for container shipping

Date: Wednesday, June 27, 2018
Source: American Shipper

A study published this month by the insurer T.T. Club and consulting firm McKinsey says the outlook for container shipping over the next 25 years is extremely uncertain.
“The outlook for the ‘demand side’ of the industry is ambiguous. A few trends point to faster growth, but other trends point to a slowdown. And one’s point of view on the question can be easily shaped by the evidence considered,” say the authors of Brave new world? — What industry leaders really think the future holds for container transport.
The report does come to five broad conclusions:
• The physical infrastructure of container shipping is unlikely to change — the container and the ships will continue to exist and “won’t be displaced by ‘sci-fi’ concepts like autonomous floating containers or undersea hyperloops.”
• “Trade flows will become more balanced across trade lanes as incomes converge between East Asia and developed economies, and the emerging economies in South Asia and Africa ‘catch up.’”
•  Automation will be broadly adopted, “especially on the landside in ports, terminals, rail and trucking, to unlock significant efficiencies.”
• “Digital, data and analytics will cause a fundamental shift in the sources of value creation and customers will expect a high level of reliability, transparency and user-friendliness.”
• Industry leaders in 2043 will look very different; some will consolidate, others may change their business model. Some will be “digital natives,” either startups or e-commerce players optimizing the container transport leg of their supply chain.
The wave of mergers and acquisitions means that the market share of the three largest container carriers has climbed from 26 percent in 2000 to 47 percent in 2017, but the authors say, “This is still a far cry from the 70 percent market share of the three largest airlines in the U.S. domestic market or the 90 percent share of the three largest international express package companies.
“Barring regulatory pushback, the logic of consolidation remains valid in the liner segment. For example, timing capacity additions to demand becomes easier in a more concentrated market, helping reduce the rate volatility caused by supply/demand mismatches.”
They also say consolidation could be attractive in ocean freight forwarding where they say the top three players have a 24 percent share and the container terminal business where the top three have a 34 percent share.
Over the past 60 years, the report notes that many commodities that could be containerized already have been. In addition, many goods have been miniaturized or redesigned to take less space. The report points to flat screen televisions as an example; knock down furniture is another.
It suggests, “The future of containerization then will be decided by how ‘mid-containerized’ commodities evolve.” For example, it says automobiles were 18 percent in 2000, but rose to 25 percent in 2005 and remain at about that level. Competition for that business with operators of roll-on, roll-off ships “is fierce,” but even hypothetical full containerization would only result in a 4 percent increase in volume.
The report says there is scope for increased used of containers to move agricultural products, including produce.
It also says there is opportunity for more “through transport” of goods, noting that much cargo originating in China is stuffed in containers only when it nears the port, and on the other side of the Pacific Ocean” over 90 percent of containers arriving in Los Angeles/Long Beach are destined for the inland, but half of these are opened, destuffed and transloaded in the port area itself.”
In some developing countries, roads can’t accommodate trucks hauling containers, so goods are transferred into small trucks. Better roads could create more opportunity for through transport. The report also says autonomous trucks could make the through-transport move simpler and cheaper.
The report says the container transport industry historically has focused on beneficial cargo owners and perhaps has not paid as much attention as it should have to consumers.
Consumers are “increasingly enjoying the speed, flexibility, convenience and low cost associated with online shopping.” E-commerce is “only just beginning to disrupt supply chains, especially in last-mile delivery, and there is much more to come. The dynamism required of today’s container transport industry to keep up with the pace of development will only intensify.”
The report says, “Standing still on the question of digital, data and analytics is out of the question. The potential for value creation is enormous, and the costs of not doing anything at all are very high.”
But it also says “over the long run, cost pressures are not going to subside. Leading companies will continue to reduce their cost bases.”

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