Moore on Pricing: Keep a weather eye on ocean markets

In 2013 we saw multiple attempts by carriers to firm up ocean freight pricing in trans-Pacific lanes. In the meantime, trans-Suez lanes were regularly defeated by rapid additions to available ship capacity in other key lanes as prices started to look better.

This increased capacity response in major routes led to more price discounting, and the result was a series of fluctuations of as much a 30 percent in major east-west lanes—while in the background were the many post-Panamax “mega” ships entering the market, putting even more pressure on prices.

In 2014 we find the appearance of improved market response by the carriers as they try to negotiate more sharing capacity agreements and are being more cautious in discounting. 

The recent rejection by the Chinese of the proposed mega-capacity sharing partnership known as P3 between Maersk, MSC, and CMA CGM will perhaps forestall carrier attempts to reduce capacity variability that plagued the market in 2013 by coordinating—some might say colluding—on capacity availability in major lanes through vessel capacity scheduling. For shippers, the P3 and similar agreements that will come online are something to watch closely. 

Carriers argue that customer service improves when they share each other’s capacity, enabling more possible embarkation dates for shippers. Further, they argue that there’s more efficient use of vessels with resulting fuel efficiencies and reduced carbon emissions per ton transported.

In practice, brokers and NVOCC’s fill this role normally by matching shippers with the best schedule and rate available. Therefore, one effect of capacity sharing partnerships is that shippers are told that they can deal directly with the carrier and still get a choice of sailings and ports.

The broker and third-party community might find this a bit alarming, as the threat of disintermediation has been hanging over this old industry for many years. 

Importers and exporters have relied upon intermediaries to help them navigate the complexities of international shipping for centuries. This relationship, and the independent third party industry roles, will continue to be assumed by the carrier and by automation. However, one important role is the continuous monitoring of the volatile ocean and intermodal markets. 

The ability of carriers to directly sell to shippers with a portfolio of in-house services has improved carrier margins—while increasing the cost for shippers to switch.

As a service provider learns of the unique characteristics of a shipper’s products and service needs, the shipper increasing relies on that provider and may not switch unless compelled to do so.  

Integration of digital messaging further increases the cost of changing, while the addition of cross-carrier capacity partnerships will further the desire of carriers to be a one-stop shop. 

Today, the smart importer/exporter is paying attention to the ocean market. Shippers need to keep an eye on capacity increases; port capacity and depth changes; Panama Canal expansion news and any reports revolving around the proposed Nicaragua canal; the development of cross-capacity partnerships; price change announcements; and, of course, the financial performance of the carriers.

Shippers should also keep on top of the news revolving around third parties, such as any changes in ownership, financial performance, changes in management, and further investment in technology and service portfolios. 

International shippers know that the market continues to be volatile, and this is certainly no time to take your eyes off the rapidly changing conditions.