As we move into post peak season period, Robert Marshall, UK Commercial Director comments on the latest ocean freight market changes:

The news this week that the South Korean-based carrier Hyundai Merchant Marine (HMM) has placed orders for new capacity totalling some 20 vessels will not come as a complete surprise to those who have read of HMM’s “one million TEU strategy”, but the order is still significant in a market that is characterised by over-capacity, and the deployment of much of this new tonnage will be in a trade where HMM currently have a very limited presence.

HMM’s current involvement in the Asia-Europe trade is primarily achieved through the purchase of slots on the back of the Maersk/MSC “2M” service. Its decision now to buy a whole fleet of new mega-vessels which when delivered will tip the scales at over 23,000 TEU capacity – by some distance the world’s largest when deliveries commence in just over 18 months – begs the question as to how and where this capacity will be deployed.

It seems unlikely that HMM would remain within 2M, and the Ocean Alliance product is stable with good port coverage and reliability that mostly betters its competitors, and does not need a further carrier added to the mix. By default that would suggest HMM will look to pair up with THE Alliance, albeit its would-be partners remain tight-lipped on that. But wherever it does end up, and whichever partners it finds, it is clear at the moment that HMM have designs on re-establishing themselves as a major player in the global container-moving market.

Prior to this announcement from HMM the long-term order-book for new capacity was for once showing more modest signs of growth after increases in 2018 of around 6%, making some 22.5M TEU of capacity available. At the same time however global throughput growth this year looks set not to exceed 4.6%, down from 6.7% in 2017, and the forecast for 2019 shows a further dip to 4.3%. The longer term position in to 2019 would therefore indicate that over-capacity will continue and there seems a very limited chance of carriers restoring rates any time soon to what they may perceive as realistic levels.

The immediate outlook for the coming weeks in the post peak season period would seem to indicate a slow decline in spot rates as capacity runs ahead of demand, although carriers will be desperate to prevent a major crash as they begin the key BCO rate negotiations for 2019 contracts, and tinkering of schedules through void sailings or “winter programmes” is to be expected. Those BCO negotiations will set the base level for the general 2019 freight rates to be agreed in the latter part of quarter 4 and carriers will seek to manage and manipulate the rates as best they can to start from the highest possible base.

At this time however it is questionable as to whether the carriers will get the increases that they say they need although all will be desperate to achieve higher revenues to cover their higher fuel costs which have spiralled upwards throughout 2018, and look set to rise even higher.  To counter those increases it is inevitable that the bunker surcharges introduced in Quarter 3 will be continued in some form, and whether this is through index-linked mechanisms or separately identified bunker surcharges remains to be seen. The bunker surcharges are without doubt contentious, but carriers will argue that they have little control over global fuel prices and cannot forward buy sufficiently long enough to give complete stability to their freight rates.  Many retailers and their suppliers, especially in the run-up to a very uncertain Brexit, will argue they have no choice but to take long-term pricing decisions and conflict in this area looks probable.

The news from HMM underlines the uncertainty that remains within the general carrier groupings and indicates that further changes are probable.  In the last 3 years the number of truly global carriers has shrunk dramatically, far more so than could have ever been envisaged, yet this could change even more and may be the last card that carriers can play to exercise more control of the market and the pricing. Rumours and more continue to circulate regarding potential acquisitions or mergers and there seems to be an inevitability about this, and further changes both in ownership and the make-up of the existing Alliances could be on the cards. How this happens or who will dominate is still not clear: the French carrier CMACGM has certainly been named  as a possible buyer of German neighbours Hapag-Lloyd, and more recently linked with Taiwanese carrier Evergreen. Such reports are quickly dismissed but there is a groundswell of opinion that suggests there is momentum to further changes. Additionally, three of the current smaller operators are already owned by the bigger players, APL by CMA, OOCL by Cosco, and HamburgSud by Maersk, and it may be that we will see those names more embedded in to their parent companies and streamlining of service and cost to balance the market. Undoubtedly further changes will follow in this somewhat fluid environment.

If you have any questions regarding the above article please contact Robert directly – Robert.Marshall@uk.ligentia.com