Inside Logistics

Rates and recovery

Ocean carriers surge, seaway to follow


(IStock image)

December 29, 2020
by Christian Siviere & Emily Atkins

In the ocean freight world, volumes started to decline in April-May, as world economies went into lockdown and volumes decreased accordingly. Ocean rates should have gone down as well, with carriers competing for smaller volumes, but instead, rates stayed at the same level and even increased on some lanes, as carriers worked together to reduce supply.

Some carriers used longer routes to save on fuel and on canal tolls, for example sailing from Asia around Africa to Europe, avoiding the Suez Canal and the Mediterranean. However, many laid up ships and the buzzword of the day became “blank sailings”. This was enabled by the fact that ocean carriers routinely work together by operating joint services, vessel-sharing agreements and slot-chartering, managing capacity while still competing commercially, at least in principle.

Collaboration

This practice of working together to limit supply could be considered anti-competitive, even close to collusion and would be illegal in some industries. However, a European provision called the Consortia Block Exemption Regulation (CBER) allows shipping companies to operate joint liner shipping services and engage in certain types of operational cooperation leading to economies of scale and better utilizing the space on vessels.

First enacted in 2009 and due to expire in April 2020, it was extended until April 2024. EU law generally bans agreements between companies that restrict competition, but the CBER allows liner operators with a market share of less than 30 percent to enter into cooperation agreements to provide joint liner shipping services, as long as they do not involve any price-fixing or market-sharing agreements.

The practice of blank sailings has been very effective. Rates out of Asia to North America and Europe are close to double what they were a year ago.

There are even rumours of carriers not honouring their contracted rates and offering space only on a spot-rate basis, i.e. higher than service contract rates. It should come as no surprise, therefore, that one ocean carrier after the other has announced substantially higher earnings. For example, the largest ocean carrier, Maersk, reported a 39 percent quarterly increase in earnings, while CMA-CGM reported third-quarter profit up 10 times over the previous year.

Canadian shores

Here at home, the marine industry outlook is improving. The Port of Halifax is expecting to regain lost ground in 2021. “Whether it’s four to six percent, global growth tends to transfer into eight to 12 percent containerized growth, and that plays out on the import trade first,” said the port’s Patrick Bohan at CITT’s Canada Logistics Conference 2020. “On the East Coast gateways, I think you will see people are ready for a better year ahead.”

In Montreal, 2020 was a very tough year, with 33 days lost to a longshoremen’s strike. It took until November 9th to get back to normal, the port’s Tony Boemi said in a CILTNA panel discussion. However, the silver lining is that the need to get back to normal, plus the pressure to move PPE for the pandemic efforts has “pushed forward our knowledge of how to effectively use technology by about 10 years,” Boemi said. The port has implemented a digital twin, a tool to predict wait times for truckers, and is working on an AI tool that will identify critical cargo aboard ships before they arrive, to prioritize unloading.

At the Port of Vancouver, “mid-year cargo volumes remained stable,” said Robin Silvester, president and CEO of the Vancouver Fraser Port Authority. And the outlook for 2021 is good. “In container trade, we are already seeing monthly volumes recover when compared to the same month in 2019, and the demand for goods shipped in containers continues to be projected to grow going forward.” Silvester noted that the port is positioned for growth with more than $1 billion in new infrastructure projects underway.

According to Bruce Burrows, president and CEO of the Chamber of Maritime Commerce, traffic on the St. Lawrence Seaway took an $80 million hit this year thanks to a late opening caused by high water. However, grain “saved our bacon”, Burrows said, with an uptick of 20 percent over last year. The chamber is working on a nine-point recovery plan that includes improving sustainability, data collection and digitization measures. It is also calling on the federal government to re-fund the national trade corridors program.