Ocean Carrier Conferences Encourage Industry CommunicationThere was a time when ocean carriers could collude on policy, capacity and, yes, even pricing. These conferences were exempt from antitrust laws. Participating carriers would meet regularly to discuss general rate increases, bunker surcharges, emergency surcharges, congestion, etc etc. Carrier conferences had a single purpose, keep the liner industry profitable with stable pricing and control of capacity. In practice, the effectiveness of the conference depended on trading conditions - supply and demand. Poor trading conditions forced carriers to take independent actions. Good trading conditions, of course, led to rate increases. More importantly, conferences allowed carriers to have an open forum to discuss pricing intentions, something that is not available today. In fact, carriers currently have to signal their intentions in the market by indicating their intent. The most dramatic example of indicating their intent was during the Great Recession in 2009.
How Action Helped The Ocean Carrier Industry ReboundAccording to the World Trade Organization, 2009 was the first year global GDP decreased since records were kept. It was also the year ocean carriers collectively lost over $20 billion. Conferences were all but abolished by 2009 and carriers no longer had a form where they could discuss policy and capacity. By losing the opportunity to communicate at conferences, ocean carriers had to discover a way to continue communication to keep their industry profitable. Maersk Line was first out of the gate announcing lay up of several ships in their fleet. Others followed. It took most of 2009, but eventually the supply/demand balance was reached. What happened next was unpredictable. Carriers left ships parked around the world until they could get clear indication the economy had recovered. The result of laying up tonnage, was a collective profit in the industry in 2010 of $15 billion - a dramatic $35 billion swing from 2009 to 2010. By sending the initial signal in 2009, Maersk Line led the industry in removing capacity thus restoring rates and profits without the platform of the conference. Maersk sent a signal to the ocean carrier industry and everyone else followed.
Ocean Carriers Latest SignalsFast forward to 2018. The container shipping industry has just come off a year of buyouts and consolidation. There are only three global alliances and a handful of carriers, yet the industry continues to struggle. Carriers are losing money, and the signals have already started. In June of 2018, the 2M liner service operated by Maersk Line and MSC announced the removal of their TP1/Eagle service to the Pacific Northwest. Shortly after, THE Alliance comprised of Hapag Lloyd, Ocean Network Express and Yang Ming announced a merger of their two services - PS8 and PS3 - removing even more capacity from the Port of Vancouver. Like in 2009, Maersk Line has taken the lead to send a signal to the market that current trading conditions are intolerable, and service capacity will need to be adjusted. In 2010, when global GDP roared back to life, shippers were begging carriers to take their freight, especially during peak season. If the current trend continues, we may indeed see a smaller scale repeat of 2010. For shippers, large or small, expect higher rates and less reliable service for the foreseeable future.
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