A look back on three decades of change in liner shipping
Singapore is making the right moves to roll with these changes, but who knows what other challenges will come to container shipping?
Jasmine Goh LP &
David Hughes
NEARLY three decades ago, when I wrote this column for the first time, the world, shipping and Singapore were very different, and in many ways.
Of course, Singapore was literally a bit smaller. Massive reclamation projects were then underway. The Pasir Panjang container terminal was being built. The Maritime & Port Authority of Singapore (MPA) had yet to be set up, and PSA Singapore had yet to be transformed into an international port operator.
Bunkering was just starting to come under the strict regulatory controls that have shown the world the value of licensing and of measurement of delivery volumes. Singapore’s top position as a bunker supplier was to come on the back of its inexorable growth as a container hub.
In the 1990s local shipping scene, Neptune Orient Lines (NOL) was still operating, but the eventual end of the national shipping line – it was bought over by the French CMA CGM, the world’s third-largest container shipper, in 2015 – was symptomatic of the transformation of liner shipping.
The Business Times then carried pages of schedule advertisements for liner companies, many of which no longer exist.
The liner conference system still existed in the 90s. It was a strange time. Many supported the United Nations Conference on Trade and Development Code of Conduct for Liner Shipping, which stipulated cargo sharing on a 40:40:20 split between countries on a trade and third countries.
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The idea was that all countries, and particularly developing ones, could benefit from involvement in shipping. Every country could have at least one shipping company which would be allowed to take part in the relevant liner conference, which set tariffs based on commodity value.
The liner conferences did have competition in the form of “outsiders”, but were generally able to keep freight rates at levels that enabled the liner companies to do very nicely, thank you, for a century or so. The pay-off took the form of regular services, continued investment in vessels and, it was hoped, a way to create national shipping lines that could join the liner-shipping profits party.
Liner conferences were very much creatures of the “general cargo” era. This was when consignments of all shapes and sizes were lifted by cranes in and out of ships’ holds. When ships no longer loaded varied cargo but identical steel boxes instead, the end of the tariff regime was inevitable. With box shipping, “freight of all kinds” and rates per twenty-foot equivalent unit (TEU) inevitably became the norm.
The conference system was anathema to advocates of free competition and markets. This was despite the industry pointing out that the relatively stable freight rates, and reasonably profitable and regular shipping services resulting from it, were in everybody’s interests.
That “if-it-ain’t-broke-don’t-fix-it” argument cut no ice with the competition warriors. By the 90s, the tide had turned in their favour.
American competition regulators had been chipping away at the conference system for some time, but it was a European Union announcement in September 2006 that dealt the death blow: The EU’s Competitiveness Council agreed that month to put an end to liner carriers meeting in conferences, fixing prices and regulating capacities. The change was to take effect in October 2008.
So what did this free-market paradise bring us over the past 15 years? We now have fewer players, but big ones operating in alliances, or “consortia”. We now also have colossal, very-expensive container ships operating the trans-ocean trades.
There are, however, also smaller ship operators on regional and feeder routes. Singapore’s PIL is a survivor, mainly operating in that sector.
Has anybody won? You can say the shippers have done well. They are the ones who send cargo to be carried by ships. For shipowners, however, rates have been lower than what would have provided respectable returns on their investment – though the Red Sea crisis recently spiked rates as a result of trade disruptions.
This year, the EU ended its block exemption for liner shipping consortia to parts of its competition law. The lines appear phlegmatic about this, though shippers’ representatives seem to believe this will increase competition between the lines.
Seasoned observers of the container shipping scene frequently berate lines for building too many ships, a move which increases capacity and depresses rates. And this indeed has been the pattern over the last 30 or more years.
But the lines are in a difficult position. As noted above, the EU specifically prohibits them from regulating capacities. Despite what shippers claim, container shipping is a competitive market, and a still-expanding one. If lines do not keep building ships, they lose market share. Collusion among them on restricting tonnage through coordinating newbuilding and tonnage-replacement strategies will keep the lawyers busy for decades.
So how do you make money out of liner shipping? Well, actually you do pretty much what Singapore has done: You decide operating ships in the trans-ocean container trades is a foolish or ill-advised venture. You instead invest heavily in owning and/or operating container terminals, keep going in the regional and feeder trades, become an effective flag state, manage ships for ocean carriers, fuel the ships and build up a wide range of support services, turning yourself into a maritime centre.
Singapore has ticked all those boxes, but the world continues to change. Decarbonisation is the overriding imperative now. So far, the Republic is doing well on this front, ahead of the curve in many respects.
Nobody can say with confidence what container shipping will look like in, say, 10 years. It could even be that we are approaching peak seaborne container volumes.
If one assumes though, that demand for container shipping continues on its current trajectory, Singapore’s strategy of pioneering green shipping lanes and hedging its bets by backing a range of alternative fuels and technologies is wise.
With artificial intelligence and autonomous ships also making their mark in the next few years, the container shipping industry could be in for another interesting and challenging journey.
This is the final instalment of this weekly column
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