Maritime shipping and port operations are both facing economic and commercial changes in the post-recession era. From strategic changes in trade flows to the operational fickleness of supply chains, maritime shipping has shown a propensity to adapt by capturing new commercial opportunities.
In an article based on his keynote speech delivered at TOC Container Supply Chain: Americas, in Cartagena, Colombia, PortEconomics member Jean-Paul Rodrigue discusses the new global principles for shipping and ports and conclude that this is “Not your grandma’s shipping market” anymore.
Questioning grandma’s sanity
In the previous environment in which international trade was continuously growing in terms of volumes and distances travelled, and where additional capacity was constantly required, the principles followed by the industry (grandma’s shipping market) were relatively straightforward: ships and terminals needed to be built to increase capacity and expand economies of scale. Embracing this trend, shipping companies, terminal operators and even the financial sector (such as sovereign wealth funds) expanded their existing portfolios through investments, mergers, acquisitions, joint ventures and alliances. Maritime shipping networks were organised to maximise the usage of ship and port assets in view of the global distribution of demand. There was also ample capital provided by financial institutions to fund the expansion of an industry content in capturing the low hanging fruits of ongoing globalisation.
Since the financial crisis of 2008-09, the port and shipping environment has substantially changed, often to the dismay of the industry. Overall positive long term growth prospects have been replaced by uncertainty and even rationalisation in some markets. Conditions that propelled the growth of the industry are shifting and the foundations of its development may not be the same. Adding further capacity and promoting economies of scale were logical strategies in a growing market, but this has led to limited options for pricing power. For instance, for the last 10 years container shipping rates have declined by about 1.2% annually. There is something of a vicious cycle at play here…
Read how all the above and many more collate to raise the question: to what extent are the core principles of global maritime shipping being challenged, and to what extent are new principles emerging in Jean-Paul’s article published in the PortEconomics partner in publishing PortTechonology.