Sea Level: the ocean blog

Ocean Market Trends Europe – East Asia, February 2023

2 M Alliance and Carrier Strategies

The key topic this month was the announcement that the 2M alliance between Maersk and MSC will dissolve in early 2025. This was not completely unexpected, given MSCs aggressive expansion strategy and a strong increase in independently operated services of both carriers during the pandemic. While there are no immediate consequences and it will be roughly a year until the first “pre-divorce” network restructurings, this move underlines how the world’s largest carriers are pursuing very different strategies:

• Maersk has not only confirmed it does not currently intends to join another alliance, it also plans to fully integrate its subsidiary brands, including the time-honoured Hamburg Süd and the groundbreaking Twill. This is one more step away from identifying as an ocean carrier toward being a global logistics company, which just happens to directly operate ocean ships, the same way FedEx operates its own planes.
• MSC in turn seems committed to continue following its long-term strategy of aggressive, often anti-cyclical, often second hand, investments into ships and a sales focus on large BCOs.
• French CMA-CGM is placing orders for additional methanol-ready ships (despite the market downturn) and is rumoured to eye another forwarder acquisition. Reactions by other carriers will surely follow.

Demand and Market Development

Macroeconomic indicators are showing better-than-expected signs of improvement. While the current economic slowdown may not turn into recession, inventory reductions are still ongoing and there is no cargo rebound currently on the horizon. Inflation and feeble demand are expected to keep volumes from China low over the coming months. As a result, contract rates to and from China continue to drop. Spot rates have somewhat stabilised due to high numbers of blank sailings before and after Chinese New Year. This has led to a further closing of the spot-contract rate gap, which on the China – Europe Trade might be history in one or two months.

Bottlenecks and Disruptions:

Declining cargo volumes from China to Europe and the US have eased port congestion, but temporary bottlenecks are still possible after the Chinese New Year.

In Portugal, port workers were on strike from 22nd of December till the end of January. Chances of more strike actions are increasing across the world as inflation is putting pressure on logistics workers’ disposable incomes.

Ocean visibility

Despite decreasing volumes in shipping, terminals remain full of loaded boxes causing congestion, increased demurrage and detention charges.

Terminals and warehouses thrive on movement and handling of goods and not on storage, but at the moment, warehouses across the globe are stuffed with consumer goods. Business thrives on movement of goods to release the needed cash to order for the next season. A slowdown of consumer spending is means it will be difficult to get of the current spiral where all in the logistics chain and value chain are affected.

Streamlining the logistics chain and keeping demurrage and detention charges in check, are key to keeping costs and time-to-market under control. Best-in-class predictive solutions and continuous monitoring will enable you to support and reach your business goals.

Ocean tendering

Discoveries from activities conducted on our Freight Procurement Platform

Observations on customer tender behavior and latest RFQ results

Even though there was a change in ocean tender from annual events into short-term tenders during the last two years, annual tenders never disappeared completely for big shippers and among mid-sized shippers there has been a return to annual or at least semi-annual tenders.

The market seems to have softened already which makes it more attractive for shippers to reach out to carriers and forwarders to negotiate long term agreements. We noted that incumbent forwarders are very interested in securing/re-winning existing business and rates are going down as these incumbents need to defend their previous allocation share. The trend of falling rates, however, does not apply to all trades - Export to USA and India appears to be growing more expensive. The biggest challenge the shippers and carriers have is service reliability, which improved marginally but should still be considered as poor. Lead times / transit times are often not taken into consideration for allocations at all as they became less predictable during the last two years.

We also see an increased interest in green solutions, which of course come hand in hand with implementation challenges. Falling contract rates mean that some shippers can use the savings potential generated to implement green solutions at higher rates.

Future outlook

Dark clouds are gathering on the horizon, and they have the potential to impact the whole ocean freight market again (e.g. One-China-Conflict in Taiwan, cool-down of global economic, high inflation & less investments, already full warehouses and production backlogs with already cancelled bookings). Customers should use the momentum of a softened market to secure lower rates and longer contract durations. If a few of the dark clouds combine, it could create a storm that could have a huge impact on ocean freight in 2023/2024, but the clouds may still clear and it would mean smooth sailing.

US perspective

Situation in the US seems to be very much in line with the European situation. In the US many shipper customers expect more stability this year. Those who had to previously execute a lot of spot RFQs expect this to drop significantly.

In general, the market seems primed for shippers to go out and secure better contract rates, while also allowing them to forecast some savings vs. previous years. Now is a prime time to consider the use of the combinatorial optimisation capabilities, to make the most of the change in costs. What previous years have shown is that carriers are not ready to be “loyal” to customers, and therefore shippers on their side should use all available analysis tools to find the most optimal mix of awards.

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