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Container Shipping Trends and Strategies: A Deep Dive into Industry Dynamics

by | Dec 18, 2023 | Blog Post

Freight Buyers’ Club, an industry podcast proudly sponsored by Dimerco, produced an episode at the China International Import Expo in December. Hosted by Mike King, the episode featured engaging discussions with industry experts present at the event, including Bronson Hsieh, the Former Chairman of Evergreen and Yang Ming, and Kathy Liu, Global Sales & Marketing Senior Director at Dimerco.

The discussions covered a wide range of topics related to the container shipping industry, including the current trends and challenges facing container lines, the impact of recent environmental and competition regulations from the European Commission, and the China Plus One strategy.

Current Market Dynamics

Hsieh provided insights into the global economy, supply and demand, and carrier expectations amidst a challenging market landscape. Despite discussing gloomy economic forecasts from the OECD and IMF, Hsieh offered a counterpoint.

He emphasized the significance of cargo demand in shaping the market landscape, referencing positive predictions from the National Retail Federation. According to Hsieh, these forecasts paint a positive picture for the upcoming year, boosted by the strength of the American economy. The optimism is further supported by the post-Covid-19 transition in the US from goods to services, indicating sustained consumption.

Hsieh was positive about carrier profitability for this and next year too. Despite an anticipated modest growth in cargo movement this year, a more hopeful increase is expected in the following year. However, he recognized that the container shipping industry will face challenges in handling the increased volume of goods from shippers, which might affect overall profits.

Vessel Supply and Over-Ordering

The discussion transitioned to vessel supply, addressing the controversial issue of over-ordering by shipping carriers. Hsieh acknowledged the reality of over-ordering, but he also offered some strategic insights into why carriers chose to do so.

  • Placing orders to align with the International Maritime Organization’s (IMO) green energy standards.
  • Utilizing earnings accumulated during the COVID period to replace vessels, with a particular focus on long-term chartered vessels.
  • Leveraging their financial strength to gain additional market share, presenting a strategic advantage in a rapidly evolving industry.

Vertical Consolidation

The conversation shifted to vertical consolidation within the shipping industry. King questioned whether carriers involved in vertical integration had fortified themselves against cyclical downturns.

In response, Hsieh highlighted the industry’s evolution, emphasizing the risks associated with managing services solely on a port-to-port basis. He pointed out that the shift towards providing end-to-end services aimed to deliver greater value to customers while also mitigating risks tied to industry cyclicality.

For Hsieh, vessel operators benefit from vertical consolidation by expanding into warehousing, trucking, and other services, providing increased choices and cost reduction for shippers. Despite historical profitability challenges, Hsieh stressed the role of vertical consolidation in maintaining competitiveness.

Omni Sourcing and Globalization

King and Hsieh also explored the changing landscape of geopolitics and the future of globalization, particularly in the context of omni sourcing, also known as multi-sourcing. Hsieh emphasized the impact of the 2018 tariff war between China and the US and disruptions from the COVID-19 pandemic, as key factors propelling the rise of regionalization.

In examining the effects of regionalization on supply chains, especially considering the acquisition of large vessels post-COVID, Hsieh acknowledged the ongoing importance of these vessels, particularly with China as a central hub. However, he cautioned against continued excessive investment in huge vessels,  advocating instead for flexibility through the deployment of smaller vessels. This adaptability is essential for addressing specific market needs, like the expanding the Southeast Asian market, and effectively navigating constraints such as those posed by the Panama Canal.

King also acknowledged the potential impact of nearshoring trends on trade lanes, especially with increased production in Mexico. He cautioned that this shift has the potential to disrupt traditional growth patterns in containerized shipping and macroeconomic growth.

Environmental Regulations

The discussion shifted to the upcoming challenge presented by the European Union’s Emissions Trading System (ETS), which will affect shipping lines operating in Europe. This regulation mandates that shipping companies surrender emission allowances for a portion of their CO2 emissions generated during voyages to, from, or within EU ports.

Hsieh revealed how the industry is preparing for these upcoming regulations: shipping carriers, anticipating additional costs, have announced surcharges that will be applied to shippers placing containers on their vessels.

However, Hsieh emphasized that shippers can challenge carriers by comparing prices with competitors. With the flexibility to choose those offering more competitive rates, shippers will still have the freedom to opt for the most cost-effective option.

Competition Rules and Consortia: Navigating Regulatory Waves

The final topic explored with Hsieh was the European Commission’s decision not to renew liner shipping’s exemption from competition rules. The 2009 Consortia Block Exemption Regulation, allowing carriers to operate vessel sharing agreements and pool capacity, came to an end.

Hsieh clarified that while the abolition doesn’t outright disallow alliances, they must still adhere to EU assessments. As long as alliances can prepay and meet EU criteria, their operations in the EU remain unaffected.

Discussing the potential impact of similar regulatory changes in the US or China, the conversation emphasized potential inconveniences caused by different policies. Hsieh stressed the need for a global system, highlighting the impracticality and inconvenience that would result from different countries implementing different policies.

China Plus One

When interviewing Kathy Liu from Dimerco, King asked about the implications of the “China Plus One” strategy on global manufacturing. Despite concerns about China’s role as the world’s factory being under threat, Liu remains optimistic. She highlighted that the strategy not only encourages non-Chinese manufacturers to diversify their production beyond China but also motivates Chinese manufacturers to expand globally.

Liu views this trend as a positive force, pushing Chinese companies to establish branch offices in other countries, marking their initial steps toward internationalization. She spoke about Dimerco’s active role in assisting both Chinese and global manufacturers in relocating production lines to countries such as Vietnam, Thailand, India, and Mexico. Liu emphasized that this shift is beneficial not only for global manufacturers seeking alternative production locations but also for Chinese companies seeking to expand their international presence. Overall, Liu’s perspective on the “China plus one” strategy is one of optimism.


Are You Ready for the Challenges Ahead?

The episode highlighted the dynamic and ever-changing nature of the container shipping industry. From navigating market fluctuations and supply chain disruptions to adapting to new technologies and environmental regulations, industry leaders like Bronson Hsieh and Kathy Liu emphasized the importance of agility, innovation, and collaboration in navigating the complex challenges ahead.

To delve deeper into the complexities of the container shipping industry, we encourage you to listen to the full podcast episode and explore other topics covered in the Freight Buyers’ Club podcast. These valuable conversations will provide you with a comprehensive understanding of the industry’s current landscape and the challenges and opportunities that lie ahead.