Greg Miller of FreightWaves has a piece out that says competition in transpacific shipping increased as profits for ocean carriers went through the roof over the past year.
Global ocean shipping is dominated by three shipping alliances that control around 80 percent of global traffic. Those alliances then work with each other and operate as something like a cartel, controlling the industry globally.
Ocean carriers in normal times rarely make money, however. For example, the South Korean carrier Hanjin went into receivership in 2016, leaving $14 billion in goods stranded on ships as the company was liquidated. At the time the seventh-largest carrier, it was the largest bankruptcy in the sector since U.S. Lines went under in 1986. All alliance carriers are foreign-owned, and many of them are heavily subsidized by their native governments.
The surge in demand for goods after the pandemic recession drove the price of shipping containers up by over 1,000 percent on some markets. All of a sudden, ocean carriers had more money than they’d ever seen before.
As I’ve written before, higher profits attract new market entrants, and we saw some evidence of that last year. Miller finds more evidence that competition in ocean shipping increased as profits soared:
Alphaliner [a reference source for the shipping industry] reported a “massive shift” in carrier deployments in 2021, with 22% of global capacity placed in the Asia-North America lane, making it the largest trade in the world after it stole capacity from other routes. Carriers hiked Asia-North America capacity by 1.3 million twenty-foot equivalent units year over year, “a staggering 31.2% increase.”
Alphaliner said that carriers shifted “as much capacity as possible to the trans-Pacific” to chase “irresistible” rates that were higher per nautical mile (including premiums) than in any other mainline trade.
And it wasn’t just the alliances moving more capacity to transpacific routes. The alliances’ share of transpacific trade declined significantly for the first time in recent memory:
In 2012-2020, the trans-Pacific balance was 15%-20% non-alliance and 80%-85% alliance. According to Sea-Intelligence CEO Alan Murphy, “Over the past 18 months, there has been a very substantial increase in the share of capacity offered outside the alliances. We are now at the point where 35% of the capacity offered is on non-alliance services.” The non-alliance share has doubled.
Miller finds that carriers are investing in building new ships. He writes that the tonnage of the ships on order right now is equivalent to 23.3 percent of all tonnage currently on the water, up from single digits in 2020. Carriers have also delayed retiring old ships, he writes, with ship demolitions decreasing significantly in 2021.
Carriers are expanding capacity, not reducing it, and they face more competition than before the pandemic, not less. That doesn’t mean this situation is going to continue forever. Plenty of companies that find it worthwhile to join the transpacific market right now may change their minds when prices eventually return to more normal levels over the next few years, and we could end up with the same 80 percent market share for the foreign-owned alliances as before.
But it does mean that too much consolidation is not the cause of the increase in prices. We’ve seen more competition in transpacific shipping than before precisely because the massive increase in prices made it worthwhile for more companies to enter the market.