Rate volatility increases despite consolidation
Lars Jensen
Leading expert in the container shipping industry. Click "Follow Me" here on LinkedIn to stay updated
Analysis of the CCFI rate index of Chinese exports rate (not the SCFI index only covering spot) over the past 20 year shows increasing market volatility despite the wave of consolidation.
The global top-10 carriers controlled 12% of the global capacity 20 years ago. Today they control more than 80%. Despite this significant drive towards consolidation, data shows that freight rate volatility during Q1 has also tripled during the same period. For Q2 and Q4 it has doubled.
Essentially there is no empirical basis over the past 20 years to conclude that there is any connection at all between freight rate stability (or lack thereof) and the level of consolidation amongst the container shipping lines - at least based on Chinese export rate levels. For those interested in the full underlying details, these are in this week's issue of the SeaIntel Sunday Spotlight.
With the emergence of the 7 super-carriers ranging from Maersk Line to Evergreen, it begs the question whether this - after 20 years of consolidation - will be sufficient to stabilize the markets, or whether something else is required? With the capacity injection in 2018-19 not being evenly distributed over the 7 key players there is indeed a high risk that positioning for market share amongst them will continue the trend of the past 20 years that consolidation does not on its own lead to stability.
Senior Account Manager | Customer Insight, Solution Design, Value Creation
6 å¹´Will the number of gap between demand/supply for container industry be included in your SeaIntel Sunday Spotlight?
Export Operations Manager at MSC Belgium
6 å¹´dears , the price volatility is inherent to the ctr carrier industry. These are long term investments with fixed capacity and less possibility to adjust supply to the actual demand.
Owner, www.shipper.co.il
6 å¹´Lars, if we look at a similar industry like the Express Integrators (DHL FedEx and UPS) we will find the three controls 87% of the market (I included TNT with this group). Is there competition within this industry? The answer is yes, even fierce competition without any doubt. So, consolidation will not necessarily lead to reduce competition and rate volatility is the outcome of a vivid competition. Regulation as to antitrust law can be very costly and painful. We saw some high-rank managers in the airfreight industry spending time in jail and companies paying fines of billions. That is a good reason why the top-level personnel will be reluctant to risk their personal freedom.
Lars, it is hard to disagree with the numbers but the optimist may point out that the industry is consolidating rather than consolidated. At a time of change (ONE Merger, OOCL acquisition and and Hamburg Sud acquisition, a big drop in Maersk results relative to competition) the pricing sits a lot more loose in the holster. If consolidation brings more confidence leading to higher discipline, consolidation might bring greater freight rate stability.