As the 2M Transpacific partners begin cutting back on service, “overcapacity” is again to blame, but some prominent ocean shipping analysts take issue with this contention. Philip Damas, head of Drewry’s Supply Chain Advisors, notes in an exclusive interview that carrier capacity decisions are driven by trade profitability, ship utilization and other factors.
“Asia-to-U.S. ship load factors had dropped to just 85% in recent months, so the decision of 2M carriers Maersk and MSC to discontinue a loop was justified from a carrier viewpoint,” he said.
At the same time, however, this move was “unfavorable” for the shippers who relied on this particular loop for their operations, added Damas.
“With the peak season now starting, other carrier consortia will likely not need to reduce capacity, at least until the peak season ends in about October,” Damas said.
According to Damas, “cutting back on service” is not just about providing available ship capacity and equipment, but also quality and reliability of the overall service.
“The recent survey of shippers run by the European Shippers’ Council and Drewry showed that there has been a deterioration of carrier customer service since 2016 and that shippers are less satisfied with the carriers’ level of service than they were before. This is an ongoing issue,” he noted.
He was also critical about recent bunker fuel surcharges, observing that carriers announced nearly identical new fees. He said that some shippers regard this as “price signalling” – a term used to say that a competitor is communicating proposed price increases to other competitors, who can then respond even without direct discussions.
For Damas, the most critical issues facing ocean carriers for the remainder of the year are to regain profitability and stop cutting customer service as a cost-reduction measure.
“The two go together,” he said. “But the finances of most ocean carriers now are poor, based on Drewry’s ‘Z score’ of financial strength. From a shipper’s viewpoint, the risks are that some carriers could discontinue their services or slot down their services to reduce increasing fuel costs if their losses worsen.”
Finally, said Damas, “a related risk” is that the rapid consolidation of the carrier industry is reducing the number of providers and could eventually push up prices, as has happened in the U.S. passenger airline business.