Container lines, who were just as surprised as the rest of us at the V-shaped volume recovery that followed COVID-19 lockdowns last spring, returned all withdrawn capacity to the trans-Pacific trade and deployed 150 extra loaders in the second half, “and even then those very significant efforts weren’t enough in the end to completely cover the market,” Ocean Network Express (ONE) CEO Jeremy Nixon said during the JOC’s virtual TPM21 conference.
Carrier CEOs and others told TPM21 that, in sharp contrast to the last major drop in demand seen during the 2008–09 financial crisis, which was their only recent point of reference, the trans-Pacific recovery was halting at first. Due to the novelty of the pandemic, there was extreme uncertainty as to what would happen next; no major economist, for example, had predicted the massive surge in demand for personal protective equipment (PPE) and home goods as US consumers accepted the realities of the crisis.
Import volumes began recovering in April, dipped again in May, and in July had fully recovered versus January. By August, a sustained surge was under way that has continued into 2021. Reflecting a shift away from service spending and toward physical goods during the pandemic, from August 2020 through January 2021, US containerized imports from Asia shot up 19 percent year over year to 9.7 million TEU, according to PIERS, a sister product of JOC.com within IHS Markit.
“The carriers had to change gears very, very fast,” Nixon said. “In the first half of the year, there was really overcapacity, and a lot of effort was made to take tonnage out of the market that was being unused. The bookings simply weren’t coming through, and a lot of those contracted volumes weren’t there. We needed to quickly and rapidly reduce the number of loops we had and to suspend services and lay up tonnage,” he said, noting some ships were sailing 90 percent empty.
“In July and August, we had to go very quickly the other way,” he said. “By August, we had all of our ships back in production and were actually trying to take further ships out of the charter market.”
Such statements are a direct rebuttal to the idea — mostly expressed in private and for which there is no concrete evidence — that carriers intentionally delayed restoring capacity to drive up spot rates because contract rates had been set at lower, pre-pandemic levels.
Ron Widdows, CEO of chassis provider Flexi-Van Leasing, who has previously served as CEO of Neptune Orient Lines and chair of the World Shipping Council, told TPM21 the carriers “reacted to a dynamic that was global — it certainly had an impact on the US and a couple of other markets — but did they cause that problem? Of course not, it was caused by the reaction to the pandemic.
“The carriers have done a remarkable piece of work to react to having no cargo moving and assets all over the world sitting doing nothing, and no freight, to the second half of the year, when they had to find every single ship that could float and deploy it to handle this remarkable demand,” Widdows said. “We have a number of customers, traditional brick-and-mortar retail companies, that in the early days of the pandemic when they were concerned about demand in the US, their stores were closed, they completely canceled orders, they left cargo sitting on the dock at origin, they completely shut down their supply chains.”
Where carriers have been criticized, some more than others, is for failing to honor loading commitments made in contracts and for charging premiums for what would in normal times be standard service levels, leading some shippers to complain that their efforts in recent years to build partnerships with carriers came up empty when it mattered most.
“Opportunistic behavior is not sustainable at all in the long run,” Dominique von Orelli, DHL Global Forwarding’s head of ocean freight, told the TPM21 event.
That, in turn, has led industry players to emphasize that agreements in container shipping need to be mutually binding, with penalties for non-performance, an idea that is clearly gaining credence; Maersk ocean and logistics CEO Vincent Clerc, for example, told TPM21 that in five years Maersk expects virtually all of its business to be contracted in this manner.
“No one could really foresee what happened in the middle of last year with the sudden volume surge, so we shouldn’t be blaming the carriers or anybody else for this,” von Orelli said. “But what we have seen again and what shows very clearly is that you have to plan long term and you have to deliver against commitments, which means you need binding agreements on all sides.”
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