There has been a lot of challenges for ocean container industry for the past few years. The profitability of the steamship-lines decreased, some lost millions of dollars. Professional services firm Deloitte says that 2012 saw the industry in recession, with significant declines in profits and valuations. There have been changes in the overall international environment, such as the eurozone debt crisis, the fragile revival of the US economy and a contraction in China’s growth rate, which have had a huge impact on shipping as well.

In the first quarter of 2013, for example, China missed its growth targets, something that has not happened since 1997. The drop in demand for cargo transport along with an increase in supply have led to shrinking profit margins. Even though the overall picture in the industry is getting better, there is still long way to go for great market environment. OK, but how long the current situation continue? Not long.. Industry analysts predict that the industry will recover from the downturn.In my following analysis, I am trying to forecast the near future of the shipping industry. Being in an industry so global like shipping, it is of course tough to forecast even next year however below is what I think the industry will be heading towards in the near future. Here is what we should expect in the near future:

1- More Alliances: Already taking place, alliances between the steamship lines will shape the industry from pricing to efficiency. P3 (Maersk+CMA+MSC) has already announced their planned service patterns and even the details of how they will handle the customer service and operation. It will most likely get approvals from the regulatory agencies and it will definitely have the greatest impact to the whole industry that we have seen for years. P3 is not the only one. Once it is up and running,industry will see more and more alliances to be able to compete. CKYH (Cosco, Kline, Yang Ming, Hanjin) G6(Hapag, NYK, OOCL, APL, Hyundai, Mol) are some of the examples of the alliances that already exits. Vessel sharing has been very common practice for almost all steamship lines for years and the next step is more in depth partnership. These alliances will start as the service partnership and eventually start acting together on all key decisions which makes me think there will be only few but giant players will be left in the market. I don’t want to get in the details of how the alliances will effect the market as this study has been done by my colleagues Can and Rojda. Please visit their pages to see the in depth analysis.

2-Larger vessels & economies of scale: Maersk recently started operating the world’s largest container ship, Maersk Mc-Kinney Moller. It is the world’s largest and most efficient operational container ships as of 2013. It is 399 metres in length and it has  cargo capacity of 18,270 TEU containers. The container ship can carry the equivalent of up to 180 million iPads or 111 million pairs of shoes in a single journey from Shanghai to Rotterdam. Its efficiency is maximized by fuel-efficient engines and a maximum speed of 23 knots, reducing its fuel consumption and carbon dioxide emissions by 20 percent compared to the previous most efficient cargo vessel. During normal operations, the vessel is manned by a crew of 19.The ship consumes 35 percent less fuel and has 16 percent more capacity than the company’s previously largest vessel and is part of its Asia-Europe route. Al these details are enough to prove that the bigger is better in container shipping however it shouldn’t be forgotten that the industry has struggled a lot with overcapacity and it was one of the biggest components of the “freight crises” that we saw back in 2009. The asset values in terms of the ships show that the industry is at record lows. According to latest analysis industry sees the last remnants of over-ordering but there is too much supply and not enough trade to justify it. Newly ordered vessels are big, efficient and fast and they will definitely be shaping the future of the container shipping. The major ports, such as Port Elizabeth, are already working on expansions which will enable them to accept larger vessels in the near future.

3-Shorter transit times, US East coast ports will be more popular: The Panama Canal expansion will have a great effect for the larger ships to call directly east coast ports. The ongoing expansion is expected to finish by 2015 and this will large ships, as big as, 12,500 twenty-foot equivalent unit (TEU) capacity to pass through the channel. The current largest vessel that the Canal allows to pass it 4,000 TEU. The expansion is in line with the large vessel orders that the steamship lines are placing. In the upcoming years, it is highly possible to see a boom in the east ports in terms of the volume. This type of large scale projects will also help to cut the transit times and with the goods are being received early without paying hefty premiums, this will help overall economy

4-More controlled and stable freight rates, services: This will be the as a result of the alliances. Rates won’t be fixed as per FMC regulations but they will certainly be more stable. It will be easy for the carriers to have more saying and control over the rates. This has pros and cons. This means that no more weekly rate changes from Transpacific Trade which will enable the importers to plan ahead and to plan for longer terms knowing what they will be paying exactly. We saw the fixed rate deals for large contract holders (this year most of the fixed rate deals were to the disadvantage of the importers from TP trade as the rates fluctuated a lot) getting more and more popular even within the smaller importers however due to their negotiation power it is tougher to close a better deal comparing to giant importers. Although this will be eliminated with the stable ocean freight rates and  the gap between the larger and smaller contract holders will be closed, small BCOs will be in distress during contract season, when they are dealing with the steamship lines directly.

5-Number of NVOCC and freight forwarders will decrease: According to a private research out of 400 largest NVOCCs in the world 1/3 of them are in distress financially. 117 global companies have been classified as in danger, 82 companies have made losses for two consecutive years. The companies that continuously invest in their people, to technology and latest changes will stand strong and will get ahead in the cut throat completive environment of the NVO industry. It will be tougher to get into business without having any niche, differentiated focus.  Always getting the cheapest rates won’t mean anything if that company is not financially strong and is able to show you their credentials. My suggestion to all importers is to seek for company credentials, even the financial statements, industry standard certifications such as ISO, C-TPAT, FMC bond copy etc etc before even start doing business with an NVO especially with those that provide the cheapest rates.  While trying to save $100, you might end up loosing thousands. This doesn’t mean that cheaper rates mean the company is not solid but it will be reassurance of the strength of the NVOCC that you are trusting with your goods.

The biggest problems that the ocean container shipping industry is facing right now is the overcapacity, supply-demand imbalance, rock bottom rates, huge losses that the companies faced. I think the worst is over and in the next two years will be the time for stabilization. The upward demand trend has started. The expectation for 2014 by industry experts is 4 to 6 percent growth in the east bound Trans Pacific trade and 3 to 5 percent westbound. We will see rapid and dramatic changes and above factors I listed will shape the industry’s future.