The world of shipping was sluggish in 2019, and 2020 was hoped by many to be more optimistic. However, this optimism for stability and growth has been reevaluated by many with issues such as the coronavirus, IMO 2020, and the continuing China-US trade war.
Our expectations for the global shipping trends in 2020 have changed, and this list of showcases that.
The outbreak of the coronavirus (COVID-19) was an unexpected disruption to international trade. Since January 2020, the virus has spread across the world, mostly affecting China. While pundits in the industry hoped that only airline freight would be affected, it wasn’t long until the effects hit ocean freight with delays from factories, logistics providers, and carriers.
The fallout has been substantial to everyone in the shipping industry. Since the supply chain starts so early in China, shippers have been unable to move their goods, and carriers are consequently seeing lower volumes, higher cancellations, and the industry is losing USD$350 million a week. It’s uncertain when shipping will return to normality, but there is discussion that the coronavirus may begin to weaken once warmer weather sets in.
Regardless, shippers, 3PL providers, and carriers will all see losses in 2020 from this pandemic.
Love it or hate it, IMO 2020 will increase overheads for carriers and shippers will be footed the bill for upgrades to ships to comply with new lower low-sulfur fuel requirements. Unlike the coronavirus, this disrupter to the shipping industry was expected and planned for.
According to CAI Transport, the goal of IMO 2020 is to make carriers adopt 0.5% m/m sulfur fuel instead of the higher 1% m/m and 3.5% fuels. This is significant as the ocean shipping industry consumed around 3.8 million barrels of fuel each day in 2017. The worry for carriers and shippers, despite the advantages of reducing sulfur oxide emissions, is that compliance with IMO 2020 will cost USD$15 billion in 2020.
IMO 2020 by itself will have a significant but contained effect on the industry. However, when mixed with the coronavirus outbreak, the timing could not have been worse for the industry.
However, by installing new scrubbers and complying with IMO 2020, cleaner fuels will be used, resulting in a 77% drop in sulfur oxide emissions from ships. Along with this, there will be a reduction in the number of ‘strokes, asthma, lung cancer, cardiovascular and pulmonary diseases’ according to VPO (Vessel Performance Optimisation).
Maersk and Hapag-Lloyd have made massive inroads in the last five years to digitalize their shipping experiences. Since April 2019, they’ve joined together to form the Digital Container Shipping Association, showcasing their commitment to digitalization.
Maersk’s CEO stated only a handful of carriers would survive consolidation, and Maersk plans to be one of them by becoming more customer-centric with their digitalized integrated shipper solution.
Their plans have been a result of the ever-growing lower demand for volume, the overcapacity of space, and the low return on investments for investors, not to mention mergers, acquisitions, and bankruptcies that are affecting carriers. With benefits that include increased productivity, efficiency, easy access to documents through a digital platform with 3PL providers, it makes sense for carriers and shippers to step further into digitalizing their processes in 2020.
Whether you’re a carrier looking to increase shareholder value by two-fold, or if you’re a shipper trying to find the most efficient way to get your cargo from A to B, the BlueX Freight Commerce Platform could be your gateway to realize these goals.
If current trends continue in 2020, carriers will continue to consolidate, merge, and perform acquisitions. In the last decade alone there have been massive moves by some of the most prominent players in the freight industry, as well as some unfortunate exits that include:
- Bankruptcies - In 2012, Stephenson Clarke (founded in 1730) entered liquidation, and in 2016, Hanjin Shipping filed for bankruptcy.
- Mergers - In 2016, CMA CGM acquired American President Lines, and China Shipping Container Lines merged with China Ocean Shipping Company.
- Acquisitions - In 2017, Hapag-Lloyd and United Arab Shipping Company, and Maersk–Hamburg Süd signed a sale and purchase agreement.
- Joint ventures - In 2018, Nippon Yusen Kabushiki Kaisha, Mitsui Osaka Shosen Kaisha Lines, and Kawasaki Kisen Kaisha joined together to form an alliance.
Bankruptcies in the industry are not a surprise as even large enterprises like ocean carriers are not too big to fail, as Hanjin found out. Without governments backing ocean carriers, efficiency is now the key, not just shipping volume. However, mergers, acquisitions, and joint ventures might become more common in 2020 as carriers continue to pull resources together to remain profitable or at least operationally viable.
The largest ocean shipping carrier alliances account for 80% of world container trade, and this allows them to offer more sailing options with fewer vessels and lower operational costs. However, these alliances only facilitate efficiency for the supply-side and fail to create new sources of sustainable revenue, such as container monetization.
The China-US Trade War decreased volumes significantly in 2019, and the trade war shows no signs of ending any time soon. The trade war began to heat up when the US placed tariffs on US$550 billion worth of Chinese products, while China retaliated with tariffs on US$185 billion worth of US goods, according to the China briefing.
Although Trump signed an agreement with China that resolves some issues, the trade war is still far from being resolved. The coronavirus may continue to add to the complexity of the trade, as China’s factories and supply chains remain affected. Even if the US and China lift the tariffs, it may not be possible for carriers to recuperate their losses in 2020.
While the first step towards normalizing trade between China and the US was taken, it’s too difficult to tell if 2020 will see an end to this trade war, or if it will continue into 2021. Either way, be prepared.
In short, the 2020 outlook doesn’t look as positive as initially thought. With hindsight, we can see that this optimism wasn’t misplaced either. There was a general feeling that the shipping industry would find calmer seas, but we’ve only seen more rough waters.
Most shipper and carrier strategies will be reactive to these crises. The silver lining is that perhaps the problems in 2020 will help to end the lack of proactivity from industry players to change their organizations. By doing so, they can change their business structures to combat future obstacles to maintain profitable margins.
Become Digital Disruptors in Freight
Carriers such as Maersk and Hapag-Lloyd took steps in 2016 to digitalize their service to offer a streamlined door-to-door shipping service. Other carriers are trying to innovate, but their attempts are isolated and don’t address a holistic change that is needed in their entire organization and services.
Carriers need to ensure they can monetize containers to create new channels of revenue and offer services on a digital platform that shippers want.
BlueX – The Carrier Container Monetization Solution
Now more than ever, carriers need to think about shielding their profitability and increase their revenue. While Hapag-Lloyd and Maersk’s path to creating their closed freight marketplace required massive investment and expertise, this asset-heavy approach isn’t your only option.
We at BlueX can offer you the same route, but with far less investment. Our Freight Commerce Platform (FCP) is an asset-light approach that gives you the ability to digitalize your booking capabilities while also offering trade services to customers that include bookings, payment terms, and many more in the future.
GreenX - The Shipper Digitalization Solution
Digitalized carriers can offer massive benefits to shippers, and with BlueX's most recent partner, Evergreen Line, you can achieve massive benefits as a shipper from their integrated ecosystem – GreenX – that provides:
- Instant quotes
- Online bookings
- Online document management tools
If you’d like to be part of the digitalization of carriers, we also offer a Shipper Ambassador Program. Our program facilitates shippers to communicate their interest in digitalized services to their carriers.