Just as the Great recession was taking hold on the global economy, the shipping conference system (FEFC and TACA) was terminated, due to the European Commission ruling of October 17, 2008. The combination resulted in a major re-set of the maritime industry in which pricing was given free-market status while at the same time volumes dropped to an all-time low.
At that time, many liner companies were on the brink of bankruptcy but in the spirit of “Never waste a good crisis”, one shipping line undertook an aggressive expansion strategy to become today’s largest of them all: MSC.
Sounds familiar? Let us fast forward to 2024.
Three topics that will impact the maritime landscape
The European Commission’s recent ruling to discontinue the 2009 Consortia Bloc Exemption Regulation (CBER) as of April 25, 2024 will have significant impacts on service and pricing. Now, in November 2023, also the UKs competition regulator suggested aligning with the European Commission’s proposal to let the antitrust immunity of container shipping expire.
The CBER was designed to improve reliability, expand capacity and frequency, and limit market share to 30% on major trade lanes, this last to prevent monopolization. Alliances resulting from Vessel Sharing Agreements (VSA’s) achieved the CBER objectives. However, the Global Pandemic upset the intended benefits, as all shippers well know.
The European Union’s Emission Trading Scheme (ETS) directive will take effect on January 1, 2024, affecting all inbound, outbound, and transshipment vessel movements. Applicable to vessels of 5,000 net registered tons or more using conventional bunker, it will be implemented in three stages using a statutory remediation calculation formula. Starting in 2024, 40% of emissions will be taxed, 70% in 2025, and 100% in 2026 with the intent to reduce emissions by accelerating use of alternative fuels. EU transshipments inbound and outbound will be taxed at 100% if the transshipment ports are within 300 miles of actual origins or ultimate destinations. Several shipping lines have now announced surcharges, however it is not transparent how the surcharge calculations were done. It is yet to be seen how this will find acceptance amongst BCO`s especially in soft market conditions.
Add into the mix the upcoming 2M split which has already been set in motion and will find its conclusion on January 1st 2025; rotation and frequency alterations are already being implemented.
If we shuffle all 3 topics the net result leads to the following observations all impacting capacities & service/routings:
The CBER termination will redefine current alliances.
EU ETS will impact the choice of transshipment ports for shipping lines and will entice them to find alternatives outside of the 300-mile zone.
2M alliance of MSC and Maersk combined 34% of total global capacity, but now they will be in direct competition.
So we can expect the 2024 maritime landscape to undergo significant changes, which will continue unfolding in next years
What to follow in 2024
Beneficial Cargo Owners now in tendering will be entering a challenging season. Line-haul rates should be very favorable, in contrast to recent years. But major caveats will arise concerning routes, frequencies, transit times, and the actual per container ETS assessments. It is unknown whether carriers will simply pass-through these new costs or absorb some percentage for a competitive edge.
And keep your eyes on MSC. In recent years and especially during Covid, it embarked on an aggressive expansion program of, chartering and second-hand purchases, and terminal ownership to secure handling capacity all over the world. It is in a unique position of being able to shift transshipment sites based on demand. The 2M dissolution timing is ideal as it can internally determine capacity allocation and frequencies on a stand-alone basis.
The most intriguing liner shipping story in 2024 will be how carriers align excess capacity and continued reduced demand in a declining rate environment. With significant new capacity in 20,000+ TEU vessels coming on-line in 2024 and more for 2025 and 2026 deliveries, the drama will have global impact, especially in terms of rates.
The Pandemic pushed up the profits of ocean carriers beyond the wildest expectations, allowing them to decrease debt, order new ships, and diversify their holdings and activities. But as the volume and revenue contraction continues into the new year and perhaps beyond, how current expenses and debt are handled will be an equally engaging sub-plot. And what happens when the cash runs out?
Possible 2024 scenarios to consider:
Could economic conditions force consolidation or could it be in the novel form of a holding company with operating subsidiaries to allow rapid capacity adjustments per shipping volumes and profitability?
Could there be segmentation into pure high-volume trade lanes leaving imbalanced trades and transshipment to a new category of owner operators?
Will the regulatory environment react given its clear signals to reduce monopolistic pricing?
2024 is the year where again the pieces on the global maritime chessboard are reshuffled in light of global economic dynamics.