Drewry Supply Chain Advisors provides overview of ocean carrier industry: Part II

Editor's Note: Philip Damas, head of Drewry’s Supply Chain Advisors, always provides our readers with remarkable insights on the state of ocean carrier industry. In this final part of the interview, he sums up the issues.

Logistics Management (LM): When we last spoke, you observed that some of the carriers have very weak, over-leveraged balance sheets as they enter the current recession and even have “distressed Z scores”.” What about consolidation? Will that trend continue?

Philip Damas: There are few takeover targets left, although a merger among Taiwanese carriers currently seems a possibility.

LM: We’re seeing a steady decline of inbound vessel calls to West Coast ports. What’s driving this carrier trend…and will it continue?

Damas: West Coast ports are seeing a large fall in vessel traffic for many reasons, including the U.S.-China trade war, the Covid 19 crisis, the long-term shift of market share to the East Coast ports, some near-shoring of production from China to Mexico and the current policy of carriers to blank sailings. As carriers reduce the number of cancellations, the number of vessels will recover from its current lows, but we expect that the cargo will take at least 3 years to go back to 2019 levels and some of it will not come back.

LM: Any other trends our readers should be aware of? 

Damas: We all know that more companies are looking at their sourcing policies to avoid being fully dependent on China-based suppliers. This will be an important trend to mitigate sourcing risks, but it will take time.

LM: What is the best short-term strategy?

Damas: For the next few months, all that logistics managers can do to mitigate the risk of late deliveries is to talk to their logistics providers to anticipate and work around capacity shortages, transport operational problems and equipment shortages and react quickly, even by using more expensive transportation modes when necessary. 

LM: What next?

Damas: This calls for sharing shipment volume forecasts, ship capacity and equipment pool forecasts and the like between shippers and carriers. 

LM: Finally, what advice do you have for shippers?

Damas: In the medium term, our advice is to take a more strategic view and work on things like identifying more reliable transport providers, transportation routes or modes, and implement tracking capabilities for carrier or NVOCC performance, moving away from the current practices of unilateral service cuts, poor reliability and frequent roll-overs,