Why shipping commoditisation is bad for you

Does creating the new shipping alliances that control 97% of the worlds most important trade lane protect the shipping industry from commoditisation, or is it too late to reverse.

It’s a common gripe you’ll hear at any container line gathering, that shipping has become commoditised and obsessed with short term returns.

Many banking analysts agree that ships are commoditised assets, and like any commodity, the cost to produce is the long-term driver of price.

The implication of this is that focusing on expected rates and returns is the wrong way to value a vessel and that long-term, shipping rates are arguably just shipowners’ cost of capital on top of this commoditised price.

While low-rates may benefit shippers in the short-term, they are terminal for shipping lines in the long term and are a key driver to the announcement last month of the new shipping alliances.

With just three global alliances serving the big trade lanes – 97% of Asia/Europe – does it really matter which carrier you choose to carry your container.”

MIQ Logistics negotiate rates and space allocations across the three alliances, which means our shippers have maximum choice and minimised risk

There are some differences, in particular the port pairs that each carrier serves. But many believe that these differences are incidental, rather than a drive by the lines to differentiate for shippers benefit.

Many of the lines are investing heavily in digitisation and automation in a bid to improve customer service and drive efficiencies. Ironically this single development will probably do more to accelerate commoditisation and drive rates down again than any other.

As it is the services attributable to the lines have become indistinguishable, which is a typical outcome of the commoditisation process.

The decisions by the lines to shed their inland transport units, exit the chassis business, and disgorge ownership stakes in marine terminal operations have all expedited the process.

Maersk’s decision to run advertising campaigns in some of its markets and reunite its land logistics arm, terminal business and ships is being pitched as a way to reverse commoditisation.

Not all shipping lines believe in this approach, so over the next few years it will be interesting to compare the strategies and see their effects on the balance sheets.

New Alliances infographic

New Alliances infographic

Maersk’s desire to build their brand and the need for the other lines to think about the way they service their shippers is important if they are to success in building their balance sheets and defeat encroaching commoditisation.

COMING SOON: The New Shipping Alliances and how they are structured – an infographic

And while shippers may desire cheap rates, their perceptions of shipping have changed in the wake of the Hanjin Shipping collapse.

It’s no longer unusual for a shipper to consider whose ship actually will do the shipping.

Game changers like Hanjin going bust put risk back into the equation and shippers will consider paying extra for brand and reputation if the lines succeed in building them.