Strategy adjustments are crucial now that contracts with shipping lines are no longer a guarantee.
“We are currently facing an era of uncertainty, with the possibility that we may never return to the height of global trade. The times when open borders and widespread prosperity were encouraged are behind us”, is the somber reflection by maritime, port, and logistics industry analyst Jon Monroe regarding the current state of the global economic landscape, which inevitably shapes the fate of the maritime industry.
Against this backdrop, the analyst observes how various supply chain actors are adapting to the new circumstances. When addressing importers, he immediately issues a warning: “In the current environment, they must confront unforeseen challenges and stay prepared for the unexpected”. This includes, he explains, not only the supply of goods but also the availability of transport capacity to move them.
But beyond this, he points out that the biggest impact facing importers is the inability to control their budgets. According to the analyst, this is largely due to the fact that, in these times, extended maritime transport contracts from shipping lines do not guarantee the effective transport of the goods for which they were signed.
It may seem nonsensical, but according to Monroe, this was demonstrated to a greater extent during the pandemic and to a lesser degree in the current Red Sea crisis, where contracts were simply ignored by shipping lines. The lines preferred to benefit from lucrative spot rates, forcing cargo owners to switch to that market to avoid having their containers stuck at the docks.
For those who believe these crises were merely temporary and that everything would return to normal once things settled, Monroe offers a sobering reality check: “Shipping lines now make more from the unpredictability of schedules than from traditional fixed schedules”.
In reality, all actors in the container shipping industry have witnessed this new dynamic, but Monroe presents it clearly for those who may not yet understand: “The shipping industry benefited from fortunate circumstances in the post-COVID landscape, including two wars, blocked maritime channels, and labor negotiations [with ILA dockworkers on the U.S. East Coast] that shifted supply chains to the West Coast, allowing them to increase rates beyond expectations”.
He also explains that shipping lines benefited in the second quarter by deploying their ships on the route around the Cape of Good Hope with their capacity fully utilized.
But Monroe is not alone in this view, as he highlights: “Even a luminary like Lars Jensen wrote an article suggesting that shipping lines might no longer need to adhere to contracts”.
The analyst describes this as a difficult issue to explain/sell in the U.S., where a contract is a contract that must be fulfilled once signed. However, in reality, “shipping lines tend to get away with it because the Federal Maritime Commission (FMC) is slow to act”.
Thus, for Monroe, the conclusion is to acknowledge the facts and face them: “The lessons learned during the pandemic have survived to be applied in the post-COVID environment, and it seems the lesson is that there are few incentives for shipping lines to offer regular container transport services.”
More Resilience Needed
Since the pandemic, the word “resilience” has become a catch-all term in the maritime industry. However, it remains true that, in the face of a constantly changing and adversity-filled scenario, especially for cargo owners, the concept is valuable.
But how can it be put into practice? Jon Monroe, aware that adaptation is key, offers some options for adjusting import logistics strategies:
- Extend Delivery Time: With so much uncertainty about container shipping schedules, the only guarantee of having a sufficient supply of products available is to extend delivery time expectations to the distribution center.
- Increase Available Inventory: Importers can no longer operate in a just-in-time environment. Maintaining available inventory (safety stock) will enhance a company’s ability to weather the instability generated by shipping lines.
- Utilize Alternative Shipping Lines that have added new services, for example, on the Transpacific route between Asia and the U.S. West Coast.
Source: MundoMaritimo
