The International Transport Forum published a report assessing disruptions to containerised maritime transport and analyses their causes and impacts.
Findings
The price of container shipping has increased substantially since the beginning of 2020. Spot rates were around six times higher on average by the end of 2021 and contract rates 2.9 times higher. However, these numbers underestimate the cost increase of container transport. Shippers confront a range of additional surcharges and increased fees for demurrage and detention. During the same period, ship schedule reliability decreased from 65% to 34%, meaning that two out of three ships arrive in port at least one day behind schedule. Moreover, unscheduled port cancellations have also increased.
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The ship turnaround time in ports in the People’s Republic of China and the United States has doubled since the beginning of 2020, while in Europe it rose by less than 15%. Many countries in Europe, Latin America and sub-Saharan Africa saw fewer direct liner connections following reconfigurations of liner shipping networks. These challenges, plus the strain on port and inland logistics capacity as well as Covid19-related labour shortages, have undermined just-in-time business and logistics models.
The globalised nature of container shipping has resulted in local supply chain problems spilling over to other regions and creating worldwide difficulties. Shippers and freight forwarders in Europe face exponential increases in ocean freight rates to and from Europe and increasing difficulties booking cargo space – even though in Europe demand for container shipping is essentially flat and port congestion is negligible.
Global container shipping companies have used capacity-management strategies to shift ship capacity to trans-Pacific trade routes in order to accommodate increased demand for consumer goods in the United States. Public policies have facilitated this situation. Regulators have allowed carriers to use cooperation arrangements to jointly manage fleet capacity.
This option has become the main element of coordination between shipping lines following regulatory initiatives in the European Union and the United States in the early 2000s to prohibit joint price-fixing in shipping conferences. Expectations that this intervention would stimulate price competition and lower shipping prices were confounded, however, by the record-high freight rates since 2020.
Thanks to these freight rates, the operational profit margin of the ten largest container shipping companies reached an estimated USD 160 billion in 2021, a substantial part of which has been used to fund acquisitions in the freight forwarding and logistics business to achieve vertical integration.
Recommendations
#1 Improve competition monitoring in container shipping: Governments should build up their capacity to monitor competition in maritime transport. The role of specialised agencies should strengthened. Competition authorities should enhance cross-border cooperation, as their actions are interdependent.
#2 Reconsider the competition arrangements for liner shipping: The current institutional arrangements for competition in liner shipping have not resulted in price stability, lower prices or more competition. A reconsideration is warranted to ensure a sufficiently wide choice of operators and reliable services. Competition arrangements for liner shipping could limit joint capacity management by carriers to foster more competition between them.
#3 Focus regulatory attention on fair competition in door-to-door container transport: The ongoing vertical integration of the container shipping industry poses new challenges for competition regulation. Shipping companies can use their exemptions from competition law in many jurisdictions and their leverage as carriers to acquire competitive advantages in markets where they now directly compete with freight forwarders, port service providers or logistics operators that do not have such competition law exemptions. Regulators should ensure sufficient competition in the land-side port and logistics markets that the maritime container carriers have entered.
#4 Increase transparency of container shipping rates and charges: Governments should put in place measures to make the various surcharges levied by maritime shipping companies more transparent. One measure could be making lists of accepted surcharges, and requirements on how these are calculated. The burden of proof for justifying surcharges should be on the carrier, rather than on the shippers, who now often have to prove that these lack justification. The demurrage and detention charges levied on shippers to smooth transport flows in ports should be made more effective by ensuring they are related to costs incurred. They should only be charged if shippers and freight forwarders can remedy the situation, not where others are responsible.
#5 Collect performance on the containerised transport chain: Containerised transport will benefit from better information about its performance, notably by benchmarking the efficiency of the interfaces between the different actors in the logistic chain. Governments could adopt the comprehensive set of indicators developed by the International Transport Forum together with maritime transport stakeholders and collect relevant data to feed it.
#6 Secure the strategic value of container shipping: Governments will need to clearly articulate their expectations for liner shipping and outline how to achieve them. Considering their substantial support to the shipping industry, governments are in a position to expect that shipping companies provide the strategic value that they are supposed to provide. Governments could make clear that their support hinged on the continued proof of this strategic value.
#7 Charge users of public maritime infrastructure more to increase cost coverage: Cost coverage of public maritime infrastructure is currently low. In the European Union, carriers contribute only 4% of the cost of financing and maintaining infrastructure in ports and in inter-oceanic canals. Generally, carriers only pay a fraction of these costs and less than in all other transport modes. Ports also cause considerable external costs (e.g. via air pollution from ships). For more efficient public policy outcomes, governments should recover a larger share of infrastructure costs via fees and charges.
