Ocean liner carriers “have had little choice but to focus on cost savings and increased efficiency as their strategy,” said Christopher Koch, president and chief executive officer of the World Shipping Council in a speech to the World Trade Association of Philadelphia last week.
The liner industry must contend with higher fuel and regulatory cost and currently has “more capacity than cargo demand to fill that capacity. And, on top of that, the industry is cyclical, and most trades are imbalanced," he said.
“Shipping rates are under constant pressure," Koch continued. "It is a bit of a paradox that, notwithstanding financial returns that are generally poor, investment continues at the rate it does. It is not an industry of quitters. It is one of fighters.”
A result of these
market dynamics "is for carriers to focus on even greater cooperation on
their operational networks to increase efficiency and lower their costs.
The Maersk/CMA-CGM/MSC P3 network is the most recent, dramatic
example of this," he said.
Koch said liner companies that have “tried to differentiate themselves by providing higher cost, but premium, service have had a tough time making those higher operating costs pay off. Higher-cost services struggle to attract enough cargo at rates needed to cover those higher costs.”
In a wide-ranging discussion of the liner industry, Koch highlighted five trends he expects to continue in 2014:
- Continued industry investment in capacity, facilities and equipment
- Highly competitive market conditions that will cause carriers to continue to focus on lowering their operating costs and improving their efficiency
- Increasing environmental regulatory costs, what he called the "green storm" — Low sulfur fuel requirements in emission control areas and installation of ballast water treatment technology will be among the near term cost increases, but Koch said “the biggest cost challenge for the industry and its customers will be the scheduled global IMO fuel standards of 2020.
- Continuing challenges from Customs and cargo security — While the maritime and cargo security regime in the U.S. “continues to appear relatively stable,” he said Customs automation of export data filing requirements is an active agenda, and in Europe, traders should expect significant changes to the European Union’s advance cargo data filing requirements to be announced in 2014.
- Increased or innovative financing of public infrastructure while the federal government continues "muddling along" and continued investment by private companies in private infrastructure