Transfar starts China/USEC service
NewsSingapore-based Transfar Shipping Pte Ltd has expanded its transpacific liner network by commencing sailings between China and the US east coast.
Speaking at the TOC Americas virtual conference this month, industry veteran and executive vice president of Cosco Container Lines Howard Finkel provided some interesting insights into how the liner shipping industry has been so successful at making money this year.
When the COVID-19 pandemic hit Europe and the US earlier in 2020, many were expecting the liner industry would be hit by the same sort of calamity it experienced during the global financial crisis of 2008-09. At that time, shipping lines cut rates furiously in an effort to fill their vessels and squeeze out competitors, leading to overcapacity and deep financial losses.
In 2020, shipping lines were extremely disciplined about taking capacity out of the market when demand fell, and actually pushed freight rates up. Even the carriers themselves were surprised at how successful this plan was. “We didn’t expect the lines to do so well,” said Finkel. “Most of the rest of the world is struggling and we are making money for the first time in years.”
He noted that lines have this year achieved what eluded them for the almost 30 years that the Transpacific Stabilization Agreement (TSA) operated, before it was ended in 2018. Finkel was the carrier chairman of the TSA. “It never worked,” he declared. “It was actually a complete failure as far as getting rates up.”
The Federal Maritime Commission (FMC) allowed the TSA to talk about rate management, but little else. Right before it ceased to operate in 2018, the TSA members took a proposal to the FMC to extend their talking mandate to cover capacity management, but the FMC turned them down. Finkel added that FMC staff thought the TSA should have pushed the issue harder, but the TSA was wound up.
Today, there is no talking agreement and “carriers are on their own”, said Finkel. They are, however, in a new alliance structure, which is functioning well. Finkel said each of the consortiums is “doing the right thing and trying to get the market timed right”. The FMC complained about the number of blanked sailings earlier this year, but Finkel said the carriers have actually balanced the market.
There is a lot of talk about how much money the lines are making at the moment, but some of this is due to other factors including bunker prices. The price difference between HFO and low-sulphur bunkers has not turned out to be anywhere near the US$150/t that was predicted, and this has reduced the impact of the different approaches that shipping lines were taking to fuel surcharges as a competitive factor in the market.
Ironically, the TSA was where lines came up with a successful bunker formula for the transpacific previously. Bringing the IMO 2020 regulations into effect with no TSA to develop revised bunker formulae “could have been a recipe for disaster”, said Finkel, and it nearly was. “The first indications were horrible. We got wildly different formulas from competing carriers.”
There was a real danger that bunkers would become a commercial issue again, but this was averted, largely due to the COVID-19 pandemic, which pushed the cost of IMO 2020-compliant fuels down much lower than expected. “Most carriers are coming up with a similar formula. We are not fighting on it. Looking ahead, it is calm seas,” concluded Finkel.
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This complete item is approximately 560 words in length, and appeared in the October 2020 issue of WorldCargo News, on page 16. To access this issue download the PDF here
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