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Killing the Golden Goose – are liner operators going too far?

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It has to be said that for most of the many years I have been involved with the shipping industry I have had little sympathy for shippers and receivers of goods carried on liner vessels who complain that there is no competition for their custom.

When all ships were more or less the same from a technology point of view, the price of fuel was at stratospheric levels and ports were charging all operators the same for port dues and cargo handling, it stands to reason that freight levels were also going to be similar. Its true that one line might distinguish itself by having a faster vessel and another might extend more credit to preferred customers but that was about the limit.

It is also true that carriers and cargo interests depend upon each other to be able to survive. Shippers pushing for freight rates down to uneconomic levels (as has been the case for much of the 21st Century) only leads to lines collapsing and that in turn reduces choice for shippers. It also gives surviving operators a chance to push up freights for a while until either a new operator arrives or – and this has usually been the case – new and bigger ships are ordered and delivered.

Over time the fluctuations generally smooth out but from 2020 to today the perfect storm has hit and there is a crisis in the sector that needs resolution quickly. There are several causes and both parties must share a measure of the blame. The root cause is of course COVID and the havoc it has caused in the consuming markets of the world in general and Europe and the US in particular.

Lockdowns and other restrictions have meant people have less money in their pockets and in many cases what they do have is difficult to spend due to regulations that do not permit all retail outlets to operate. Online selling has taken up some of the slack but by no means all. In the UK, some workers are being furloughed and subsidised by the government, but payments are limited to 80% of normal wages and also capped so that many are receiving less than half of normal income.

Unsellable goods are trapped in ports inside containers causing congestion and cutting off supplies of empty containers for those that do still want to ship goods from the Far East to Europe. The combination of congested ports and lack of boxes has led lines to blank sailings and push up the freight for what they can move to record highs.

Not a problem says EU

For its part, the European Shipping Council has asked the EU to investigate the actions taken by lines. It has complained particularly of the increase in blank sailings (on some trade lanes by more than 30%), a decrease in reliability (only 50% of ships arrived on time over the last year), and especially the outrageous price hikes that most customers had to accept in order to have their goods loaded (the prices that put many SMEs in a situation of losing money and businesses).

These arguments have been rejected by the European Commission which said the present market situation including recent price hikes, is from their point of view, mainly due to the wane and surge on the demand side as a consequence of the COVID-19 crisis. At the same time, the Commission indicated that price hikes as such are not seen as a justification to start an investigation. It has at least said that it will speak with other competition bodies and governments to see what might be done.

Giving shipping a bad name

It has to be said, the public image the shipping industry has is far from good. It may not be true that shipping is dirty, and it may well be a good thing to advertise that shipping moves 90% of world trade but when stories like this make the headlines it is not good.

With comments from both importers and exporters blaming the lines for a six fold increase in freight rates, the perception of the general public that ultimately has to put its hand in its pocket to pay the cost of shipping, is that it is fat cat shipowners mugging them off.

More importantly, the cost of shipping is becoming unsustainable. If that causes importers in Europe to fold, the likelihood is that consumers may find they can do without some of the nick-nacks, clothes and gadgets and in the long run that will means less cargo for lines to carry. Already there is a growing movement  to reduce reliance on imported goods and by making those that are coming even more expensive, there is a real danger that liner operators are killing the goose that lays their golden eggs.

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