Ocean freight perfect storm: an 'unprecedented and exasperating situation'

I have been involved in shipping since 1977. I served as a navigation officer in the merchant navy for 10 years, then moved ashore when family came along. I have since worked for a major shipping line for 5 years, served 16 years for two major global forwarders and finally started Atlantic International 13 years ago in 2008. That’s 44 years in shipping, and I have never seen anything like the current situation.

Nearly all shipping lines, on most trades, are booked full many weeks ahead. We witnessed freight rates double on the Pacific trade to over $6,000 per 40’ in Summer 2020. Then, by Autumn, rates on Asia/Europe routes started to rise -within three 3 months they had increased by over 500% to record high levels.

Now the Transatlantic market rates (Westbound to North America) are increasing as all carriers are full. Equipment availability has been another huge problem in some areas, particularly China and South East Asia.

I have never seen demand for container space like this before. As businesses started to open again, after the first lockdown, empty warehouses needed replenishing. This, coupled with increased consumer spending on goods (not holidays or eating out), increased demand further and as vessels became full prices were driven up. These increases were industry-wide.

We have seen peaks and troughs before. In periods when vessels weren’t full, shipping lines chased volume and market share, meaning container rates reduced. Then, through blank sailings, or even 'laying vessels up', ships filled once more and rates went back up. But never before to this extent.

So what is the difference this time?

Firstly, there are fewer carriers due to mergers and acquisitions -  there are now only eight major global shipping lines, half that of only a few years ago.

Furthermore, these eight lines are merged into just three consortia; '2M', “the Alliance” and “Ocean Alliance”. These three consortia can now control supply of space better than ever before, and they are doing a fine job of it from their point of view.

In the past, when the global economy has taken a downturn and demand for space reduced, shipping lines have struggled to adapt and take space out of the market.

Not anymore. Now these three consortia have better control, evidenced by the fact that during the first lockdown, when global demand for container space plummeted, shipping rates remained steady.

Secondly, I think there must be a new 'breed' of senior executives in the major global carriers who have realised the bad old days of boom and bust must end.

So, they have stopped chasing volume/market share and, at last, are chasing profit. This isn’t a bad thing of course, but when the carriers are grouped into just three consortia some would claim it has become too easy for them to control the market.

Back in the 1990s, some shipping lines were fined heavily by the EU and US authorities for price fixing. Whether shipping lines have more recently been colluding to fix the supply of space, I would not wish to speculate or comment on publicly. But for prices to have risen so dramatically indicates some kind of competitive market failure. Until this is investigated by the various competition authorities, and any over-concentration of market power is corrected, I believe high prices are here to stay.

So, that's my take on an unprecedented and, for many, exasperating situation.

David Snell is managing director of UK forwarder Atlantic International Freight Services Ltd. which provides international freight services from USA-UK and UK-USA with nationwide coverage for goods being shipped via sea freight and air freight.