Customers seek guarantees from container lines

The Freight, Container and Supply Chain panel at CMA Shipping 2023 gathered a range of views on the container industry, including from Hapag-Lloyd Americas Northeast VP of Sales PJ McGrath.

McGrath noted an increase in customers paying a premium for guaranteed vessel space, something that would not have been heard of five years ago. The trend has the potential to lead to customers paying for guaranteed delivery times, he expects. “I think that’s a first step in the direction of, maybe guaranteeing on time.”

McGrath noted services where customers pay extra for more reliability on offer from Matson- to Los Angeles, and Swire- to the Pacific Northwest. When asked to comment on whether such premium pricing might become prevalent in the marketplace, McGrath said he saw demand for more services offering better reliability- but did not see it as an industry-wide trend.

The pay-for-space phenomenon has grown in a period where the pandemic tipped the supply-demand balance for container shipping, and tanked reliability.

Bill Rooney, VP Strategic Development at Kuehne + Nagel said this leads to shippers building in extra days to their logistics plans, reducing overall efficiency.

Lead speaker John McCown, a liner shipping veteran, saw his own reliability issues, but this time with the data itself. On price reporting, McCown said, “there is a problem with some of the analog data… being misunderstood and misquoted.”

In reviewing the net incomes of the top Liner carriers, McCown said: “In the four years before the pandemic, the industry saw small losses….with cumulative net income of -2%.” COVID came along and brought seven quarters of recording earnings, “peaking in 2022 Q2 when industry net income of $63bn,” equivalent to a 46% margin, said McCown.

McCown warned against pricing centered on over-reported “spot” numbers as liner moves are done under yearly contracts; spot rates “need to be taken with a large grain of sea salt,” he said.

McCown also took issue with the New York Federal Reserve’s Global Supply Chain Pressures Index, a Black box with 27 variables designed to measure supply chain inflation. GSCPI shows a “back to normal” rating while company earnings suggest a market still cranking at well above historical averages. “You look at this- you need to have real concerns,” he said.

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