Global News After pandemic shock, container shipping navigates uncharted waters

At a moment when it’s tempting to focus on the recent past in an attempt to comprehend the disorienting experience of most tumultuous period ever seen in ocean container supply chains, the market is changing so rapidly that no matter how difficult the past few years have been on so many shippers and transportation providers, the future is once again taking center stage.

A focus on what’s ahead versus what happened, and all the challenges, is driven by necessity. The market, yet again, is shifting on multiple levels. It is quickly moving on from the pandemic period and everything that transpired, and moving into a phase that is at once familiar but also entirely new and unpredictable.

Developments in recent months point to multiple signs, in fact, that the industry has now left the COVID-19 period behind and is entering another era. These new times are defined by unfamiliar factors such as a radically altered geopolitical environment, the national political landscape surrounding shipping, and a soon-to-be altered industry structure due to the impending breakup of the 2M Alliance — factors that could converge in unpredictable ways.

Even as rates plummet back to earth and port congestion and delays are fading from view, setting up a more traditional year of contract negotiations and pricing, the new era is one that will be defined in ways it wasn’t in the past, starting with the acknowledgment and avoidance of risk. Unpredictability is ‘assumed’ Supply chains for the entire period of globalization from the mid-1990s through the pandemic were defined by opportunity and efficiency. Reliability was for the most part taken for granted and risk was abstract and removed, more the domain of scenario planners versus built into active strategy. Disruptive events when they happened were seen as individualized and not part of a larger pattern.

That has now changed. Unpredictability is assumed, even if the reasons triggering it are as of yet unknown. Even if on the surface the industry looks normal, new behaviors will result from a heightened perception of risk. An early indication of that was the much greater than expected diversions from the West Coast over the past six to nine months to avoid longshore labor disruption during contract negotiations. Several sources attributed that to an elevated priority around risk avoidance given the harsh experience of previous bouts of US West Coast port disruption that had occurred during earlier negotiations.

And on top of known risk factors are new ones such as geopolitics, which pose fundamental questions to corporate and supply chain leaders that often boil down to this: Given that re-sourcing to alternative locations is costly, time consuming, and risky in its own right, is it worth it to abandon known suppliers and logistics infrastructure that have adequately and profitably supported many companies’ supply chains for years, if not for decades?

But a new perspective on risk isn’t the only way that the environment around containerized supply chains going forward will be fundamentally changed. Coming out of COVID-19, the legislative and political picture around shipping has changed in ways that could have further significant impact on the industry in the future. Washington likely not done In the United States, the pandemic catalyzed a trend slowly taking shape in the background, which started with the disappearance of major US-based carriers as players in Washington, DC, as carriers such as APL and Sealand were sold to non-US entities, and the parallel emergence of powerful shipper lobbies. If the 1998 Ocean Shipping Reform Act (OSRA) was forged out of a consensus of shippers and carriers regarding confidential contracts, OSRA-22 was passed over the objections of ocean carriers and with bipartisan majorities, its terms unequivocally favoring shippers. An activist Federal Maritime Commission is channeling the priorities of OSRA-22 and US interests more generally, including shippers and truckers in ways it never did before. Where does this lead? Already there is talk in Washington that legislators may not be done rewriting shipping legislation in ways that could go well beyond the provisions of OSRA-22.

If that wasn’t enough, even as the industry was emerging from COVID, a thunderclap occurred on Jan. 25 when Mediterranean Shipping Co. and Maersk announced plans to discontinue the 2M Alliance when it expires at the beginning of 2025. Gradual industry concentration over many years for the first time reached a point where the biggest two carriers had achieved scale large enough to operate on their own, without long-term constraints of alliance partnerships. With significant market power and the freedom to deploy it, it changed the industry landscape overnight and raised the specter of yet further consolidation that may need to occur in reaction. Smaller carriers are disadvantaged by the constraints imposed upon them by alliances and if intense pricing pressure continues, will be further pressured to reduce costs, possibly even to the point of engaging in further consolidation as the ultimate step in cost reduction.