ON Jul 1, Singapore’s major container line Pacific International Lines (PIL) announced the appointment of Lars Kastrup as its chief executive officer (CEO). 

PIL’s executive chairman, S S Teo, said: “Since Lars joined us in July 2020 — first as senior advisor, followed by co-president and executive director, he has kickstarted various commercial and operational initiatives which have enabled the company to benefit from the strong market.

“He was instrumental in the restructuring, streamlining and optimisation of our trade network and vessel deployment, aimed at transforming PIL into a strong and efficient shipping line. Looking ahead, the Board and I are confident that Lars will be able to continue to drive improvements at PIL, which would provide to us a sturdy shield against possible volatilities arising from future industry cycles.”

PIL is currently ranked 12th in the world, with its fleet of around 100 container vessels. Its global trade network spans Asia, Africa, Latin America, the Middle East and Oceania. Container shipping has been through very difficult times over the years, generally experiencing low profitability, so the upbeat statement from this major Singapore-based company is encouraging.

Interestingly, just a few days later, there was another statement from PIL that announced that it had joined the World Shipping Council (WSC), the main container shipping line organisation which works for a “safe, secure and sustainable industry”. Kastrup will represent  PIL on the WSC Board.  

In the past 2 years, container freight rates have soared, and shipping lines have, at long last, been making real money. That has, however, has prompted a backlash from shippers and others, exemplified by the new US Ocean Shipping Reform Act of 2022 (OSRA).

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WSC couldn’t prevent the OSRA being passed, but it does do a very good job in fighting in the sector’s corner. It makes sense for PIL to be in WSC.

And criticisms on liner shipping are set to mount. Current measures of competitiveness in the global liner shipping market are incomplete and therefore inaccurate; they fail to take into account the degree of co-operation between carriers, which results in a more highly concentrated industry, to the serious detriment of shippers worldwide, at least according to a report commissioned by shippers.

This conclusion was one of the findings presented in the Container Shipping Market Quarterly Review for Quarter 1 2022, prepared by MDS Transmodal (MDST), in collaboration with the main international shippers’ organisation, Global Shippers Forum (GSF).  A modified measure has been proposed, based on the alternative indicators suggested in a recent study produced by the Organisation for Economic Co-operation and Development (OECD), International Transport Workers’ Federation (ITF) and MDST, which better reflects the degree of cooperation by lines, not just through the 3 big alliances, but also agreements under which lines across alliances operate shared services. In other words, the lines are set to be bombarded with claims of anti-competitive behaviour.

This, of course, goes back to the fundamental issue of how regular liner services can be provided at a fair price. The lines used to have rate-setting conferences, which were hated by shippers, and were eventually banned.  Since then, in general and until the coronavirus pandemic, shipping companies have continued to build too many new ships, thus ensuring that supply would outstrip demand and so keep rates low. Generally speaking, shippers have had a very good time of it, despite howls of rage over various surcharges, for many years.

The big question is whether the current boom times for the shipping lines can continue. 

Oslo-based freight-rate benchmarking and market-analytics platform Xeneta has released the figures, drawn from its Xeneta Shipping Index (XSI) Public Indices for the contract market, which crowd-sources and aggregates real-time data from the world’s leading shippers — and they suggest that rates may continue to climb.

According to Xeneta, long-term contracted ocean-freight rates, as the cost of securing container shipments, climbed by 10.1 per cent in June. Now, rates are about 170 per cent higher than at this time last year, with just 2 months of declines in the last 18 months. The analyst noted: “Despite a degree of macro-economic uncertainty clouding the horizon, all major trades saw prices moving up, with some corridors showing significant gains.”

Xeneta CEO Patrik Berglund said: “Rates developments that would have been front page news a few years ago are in danger of becoming the norm in a market environment that is historically hot. After last month’s colossal rise, we see another hike of 10 per cent, pushing cargo owners to the limits, while the carriers fill their pockets. Again, we have to question, is this sustainable? And the signs are gathering that, well, it might not be.”

He noted that falling spot rates that could increasingly tempt shippers away from traditional contracts. He added that looming industrial action in ports (in Europe and, potentially, the US) that could further damage schedule reliability are only just recovering from recent congestion and Covid-induced disruptions. In addition, OSRA may have an impact while “the looming shadow of widespread inflation may impact upon consumer demand and slow economic activity”.

Shipping consultant Drewry’s latest Container Forecaster report is clear that the “container market has definitely turned”, but it cautioned against expecting “a swift normalisation”. 

Drewry said: “Carriers have proved that they can still make astonishing profits even when moving fewer boxes, posting record EBIT numbers in Q1 20 22 despite lower volumes, but the gloss is starting to fade and investors are getting jittery with liner share prices down by around 22 per cent since the start of the year.” 

It advised: “Ocean carriers need to address the looming environmental and over-capacity risks by scrapping older, less-green ships, while shippers might be wise to wait for the market to come back to them before committing to lengthy contracts.”

It would be in everybody’s interest if a new “new normal” in liner shipping entails rates that are lower — and at levels that are sustainable in the long term. Unfortunately, the history of liner shipping doesn’t necessarily inspire confidence that that will happen.