By Arthur Chen      Photo：M Mahbub A Alahi

From 2022, high ocean freight rates will become the new normal. Cargo owners need to get used to such a market ecology.

According to the warning of most of  container shipping lines, the container transportation delays that have plagued the world for the past two years will continue for some time, because the covid pandemic is still expending, and the capacity of many main sea ports have been interrupted. To expect the coming recovery is full of challenges. The ports of Los Angeles and Long Beach in the United States have gradually cleared space for container stacking since October last year, but because of the lack of sufficient terminal workers and land truck freight capacity, container vessels still have to wait outside the ports for a month before they can berth and unload. Even though shipping lines have worked hard to charter ships, build ships, and build containers to solve the part of maritime shipping, but containers are still stuck in global ports, especially those in the United States.

Before the pandemic, the container shipping industry focused on economies of scale, and the homogeneous competition was serious. Shipping companies were more willing to offer low cost freight for more loadings and building larger ships. It is still profitable to grab market share with a low-price strategy in many years. The request of the cargo owners is very simple - as long as the lowest freight rate and on-time delivery. Cargo owners have no incentive to consider supply chain "resilience issues" behind low freight rates. Therefore, in the past, shipping lines and cargo owners played low freight rate game and speculative cooperation model. The interests of both parties are to reduce their respective costs as much as possible, and it is impossible to consider crisis if the overall stability of the logistics supply chain is ignored. While enjoying the dividend of low ocean freight, cargo owners are also taking on the potential risks of downside supply chain flexibility and resilience.

Unfortunately, the pandemic in 2020 has magnified the problems of every link in the logistics supply chain, including ship capacity, port terminals, inland container yards, truck and railway terminals, and empty container capacity. The importance of logistics supply chain service providers such as freight forwarders, port operators, container yards, trucks, warehouses, railways, customs brokers, etc. have also been highlighted because of the chain disconnection in the past two years. They are the key roles for smooth logistics.  During this period, the Suez Canal was blocked again, which aggravated the capacity failure. Ironically, it also makes the shipping lines more income in a year than they had in the past decade. Statistics show that by November 2021, the three major shipping alliances have earned more than $200 billion in net profit. Evergreen has staff bonuses for over 40 months in historical highest. Shipping lines make more profits than the world's biggest tech companies.

From 2022, high sea freight rates will be the new normal. Shippers need to get used to such a market ecology, because every service providers in the logistics supply chain have be proved to be indispensable, and their existence value have been suppressed and ignored by cargo owners for a long time in the past, resulting in too low profits. Therefore, employees and equipment cannot effectively improved. For example, many ports around the world have extremely high densities. When trucks arrived, they could only “dig out” one container from the mountains of containers to load onto trucks. How inefficient can be imagined. In particular, the port and inland transportation capacity of the United States has exposed serious weakness since the beginning of the pandemic. Only by reasonably improving the allowances and security system of employees can the lost labor force be replaced, and these can only be solved by a large amount of investment and improvement. In fact, in 2021, in addition to the huge profits made by shipping lines and related large freight forwarders with solid spaces. The other service providers silently undertook the main works and earned limited profits, while the shipping lines took the opportunity to make huge profits, but others had the infamy responsibility of supply chain disconnection. The most direct way for service providers in the logistics supply chain to attract labors and improve transportation efficiency in the future is to increase labor benefits and invest in more equipment such as warehouses, trucks, AI software and application of new technologies to strengthen cooperation with all parties in the port ecosystem etc. These will lead to higher transportation costs. Cargo owners shall be aware  the improvement of the logistics supply chain requires corresponding income. There will be no more cheap or free services in the future. Once the logistics cost increases just like inflation, it is very difficult for the market price to return to the previous low price area. Just like the rise in housing prices is hard back the original level, unless it is possible to achieve deflation. But no government in the world wants deflation to happen.

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