The State of Ocean Freight

The State Of The Ocean Freight Market - Container Ship

Global supply chain management continues to change in the wake of multiple disruptions. On one hand, global freight management is challenging, despite the best efforts of transport optimization, due to the COVID-19 pandemic. On the other hand, the 2020 hurricane season is shaping up to be far more active than originally predicted. Within this mix, the US presidential election will further build more instability and uncertainty going forward. Few transport modes have seen the massive changes that have swept through the state of ocean freight in 2020. In fact, 15% of shippers have experienced the adverse impact in ocean transport simply due to the pandemic, says Supply Chain Dive. Surviving through the fall and peak season is predicated on understanding the state of ocean freight now and how it will move in the coming months.

More Blank Sailings Continue to Marr the Face of Ocean Carriers

Earlier this year, multiple ocean transport carriers announced blank sailings in response to the COVID-19 pandemic. These blank sailings were to avoid excess losses and maintain minimal operations. The unprecedented downturn, as explained by Patrick Burnson of Logistics Management, meant that “carriers had little alternative but to remove capacity from the market.” Unfortunately, the problem, which experts hoped would fade by now, appears to continue as the major ocean freight alliances, particularly THE Alliance, have further announced blank sailings through Q4 2020.

According to Container News, The Alliance’s members, including Hapag-Lloyd, Yang Ming, ONE and HMM have announced additional changes to void core routes in weeks 36 through 39. These continue to affect both transpacific, transatlantic, and Asian-Middle East routes.

Uncertainty Continues to Highlight the Importance of Data-Driven Decision Making When Planning Ocean Transport Capacity

An odd problem did arise from the pandemic in relation to ocean freight management. As further explained by Burnson, “in the case of the transpacific, however, carriers clearly overestimated how much capacity needed to come out.”
The action contributed to a sudden spike in rollovers and larger increases in ocean spot freight rates. Clearly, failure to consider the demand on transpacific routes led to this problem, and with blank sailings in place in the Atlantic, clearly resources were not properly relocated to make up for these changes quickly enough.

Vessel Maximum Capacity Appears to Have Reached a Precipice

Another integral feature in the modern world of ocean freight management surrounds the construction of “mega vessels.” Container vessels have reached what some have described as a maximum size of approximately 25,000 TEUs. The current crises unfolding across the globe did not help the issue of creating bigger and stronger ocean vessels. Carriers are expected to resume ordering ultra-large container vessels to support trade growth going forward, but the rate of order is expected to decline in general. Of course, this depends on how the market responds as carriers reposition fleets to stop the rate of cargo rollovers and ensure profitability.

Ocean Freight Is Very Much a “Pay to Play” Market for Now

For the time being, shippers and non-asset based freight brokers are at the mercy of ocean carriers. Limited sailings and uncertainty have left control over pricing in the hands of ocean liners. However, the higher rates are unsustainable. If capacity does continue to drop, especially as hurricane season ramps up and should a second wave of COVID-19 occur, rates will hit the ceiling. Of course, there is another side to the topic. Disruption does stimulate demand within the spot market. All freight is bought for and paid for on spot, but there will come a time where the tables will turn.

What Does It All Mean for the Ocean Transport Market

The ocean transport market is in turmoil. As goes ocean shipping, so goes the state of the global shipping market. Of course, technologies such as transport modeling and using a transportation management system (TMS) can help. Regardless, volumes are consistently higher in transpacific markets, and transatlantic markets have seen more blank sailings. The future of ocean freight management hangs in the balance. As a refresher, a blank sailing refers to aA scheduled sailing that has been canceled by a carrier or shipping line so a vessel skips certain ports or even the entire route.

Ultimately, disruption does not affect all supply chain parties equally, and in time, carriers and shippers will flip their positions on the side of disruption. When it returns to the shipper’s market, the opportunities to keep freight budgets in check will be easier to attain and find. Until that point arrives, ocean freight is going to be filled with higher costs and more uncertainty.
Only those that consider their whole supply chains, including the international suppliers, distributors, carriers, brokers, forwarders, and customers can hope to make a difference. Only those that recognize their limits and put the systems in place to understand how the market is responding to disruptions can truly assess the state of the ocean freight market in 2020. Fortunately, MercuryGate can help with building that strategy and building collaboration into your domestic and global networks through digital transport management.

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Phil Melton
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