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‘Indicators’ Prompting Questions

World Transport Czar Doubts Container-Shipping Is ‘Sufficiently Competitive’

The past two years have shown that global supply chains “are very vulnerable,” and especially vulnerable to “external shocks” like pandemics and war, Young Tae Kim, secretary-general of the International Transport Forum, told the World Trade Organization’s Global Supply Chains Forum Monday. “Some vulnerabilities are the result of internal factors as well,” he said.

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The closing of international borders during the first phases of COVID-19 in 2020 “initially hampered” global road freight, said Kim. “There was not much the industry could do about that, but the pandemic also exacerbated the driver shortage.” It turned out that industry “had not done enough to attract young people as professional drivers,” he said.

In maritime shipping, which transports about 90% of the global freight, two-thirds of ships in 2020 arrived in port on schedule, said Kim. “Two years later, two-thirds of the ships are late,” he said. The average delay of container ships “is now around seven days,” he said. “The turnaround time for ships in port in China and the U.S. has doubled since 2020.”

The supply chain crisis also has its “cost side,” said Kim. “Spot rates” in container shipping are about six times higher than two years ago, he said. This creates “definitely major challenges” for importers and exporters, he said. “The steep rise in ocean transport costs translates into higher prices of consumer goods that fuel inflation.” Higher costs can also “erode the profitability of importing and exporting companies” that can’t pass those costs on, he said.

The “unpredictability” of cargo arrival times also “undermines just-in-time production,” said Kim. “The difficulties in securing cargo space have created much uncertainty.” That global transport chains grew increasingly interconnected during the pandemic is one of several possible “explanations,” he said.

Surging demand in North America for consumer goods from Asia caused maritime operations “to shift container-ship capacity to trans-Pacific routes,” said Kim. “The shift has driven up the price of ocean transport,” and has caused ship delays in other parts of the world, he said. “In other words, local supply chain issues have become a global one.”

Kim harbors serious doubts about whether the container-ship market is “sufficiently competitive,” he said. “As the pandemic hit, container-freight demand collapsed, yet freight rates didn’t fall,” he said. He cited the “coordinated withdrawal” among shipping companies of cargo-carrying capacity, “allegedly to adjust to decreasing demand.” Yet despite the lower demand, freight rates rose again as early as June 2020, he said.

These are “indicators” that have prompted questions from regulatory authorities around the world about the shipping industry becoming too “consolidated and integrated,” said Kim. “Vertical integration within the shipping sector is accelerating.” The World Shipping Council didn’t respond to questions Tuesday, but has regularly defended the industry’s competitiveness.

Shipping companies “are increasingly investing in marine and inland terminals” for last-mile road deliveries, said Kim. “They now offer door-to-door services, but that can create conflicting interests. They become competitors of the pure-logistics companies who are, at the same time, their customers. They have an incentive to use their own terminals, even where clients would be better served with a different solution.”