Freight Industry Visible Trends 2017 – Valueshipr

Freight Ocean Liners

The container market is starting to emerge from one of the worst industry downturns with demand outgrowing capacity for the second consecutive quarter. This is on back of the continued experience for most Ocean carriers, who experienced extreme margins (below zero) and revenue pressures and dropping yields. This situation has led to some of the largest liners declaring bankruptcy shutting operations as well.

Hence this waft of some improving conditions has come in as a well deserved succor to the ailing ecosystem. One of the largest liners in the World recently shared numbers of increase in freight rates by 4.4% and increase in revenues and volumes by 10% last quarter. Some of the visible trends / triggers that would drive the industry are as follows.

Improving Strong Demand
Post the demise of one of the largest Ocean Liners, there has been a spike in demand and it has created a supply – demand imbalance. The large scale scrapping of vessels and no real new vessel ordering has also impacted this aspect of imbalance. It is estimated that the demand for containers would increase to around 4 – 5% for the year.

Better rates / yields across lanes:
There has been a perceptible improvement in the shipping rates of single containers along the Asia – Europe and Asia – US (West coast) routes, over 2016 rates.

Asia – Europe rates for a single container is seeing a increase of almost 80-100% and and Asia – US (West Coast) is seeing an increase of almost 45-65% over 2016. This trend will continue due to the supply-demand imbalance. ( Source –Braemar ACM Shipbroking / WSJ May 2017)

Carrier Consolidation:
Some level of carrier consolidation will continue in 2017 and we may see the entry of a new carrier into the transpacific trade. Consolidations and Mergers will continue for sustainability, utilisation and economies of scale. Major mergers like CMA CGM’s acquisition of Singapore’s APL, Cosco and China Shipping’s CSCL merger, acquisition of Hamburg Sud by Maersk etc are trends setting and redefining the space.

The new alliance structure would be 2M (Maersk, MSC); G6 (OOCL, Hapag-Lloyd, NYK, Hyundai, MOL, Hamburg Sud); KYHE (“K” Line, Yang Ming, Evergreen, Hanjin); and 05 (CMA CGM, CSCL, UASC, APL, Cosco)

Redefining Distribution
Some of the Global majors are trying to reshape and redefine itself and adapt itself into a Global Supply Chain player by integrating its transport and logistics units, move more ships in and out of ports, carry more inland cargo, digitalise supply chain on platforms for scale, collaborations and transparency etc. Newer trends in Large majors (Shipping and freight forwarding) aligning with platform ecosystems in Americas, Europe and Asia to quickly provide a integrated solution to consumers and also draw in new businesses are being observed.

India trends::

E commerce
With eCommerce business in India rapidly scaling up, newer global players are making a beeline for the consumers in India with product niches and service standards. The government is also trying to establish a conducive and fair platform for e commerce players to effect trade harmoniously. Service standards set up by these players in gratification of the consumer demand are turning a new leaf each day with better, faster and simpler logistics. Logistics players have had to rapidly re-adjust to the paradigm change demanded by these e commerce players and embrace technology to enhance efficiencies.

GST
Effective July 1st, 2017, the GST is all set out to be rolled out. This will bring about a uniform tax structure as India becomes one big market, there will be fewer and larger warehouses. Second, it will lead to a larger number of bigger trucks on road as there is greater adoption of the hub-and-spoke model. Third, these changes will lead to greater economies of scale for transport operators and lead to more companies outsourcing their logistics operations. Standard tax rates will allow corporations to move away from the practice of building a warehouse in different states to adhere to each state’s tax code. A big packaged consumer goods company could thus make do with one large mother warehouse at critical points in the country and employ logistics companies to manage distribution and supply chains. The new tax will result in greater adoption of a hub-and-spoke model in segments such as warehousing, cold chain, container freight stations and inland container depots

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