Supply Chain Matters highlights an added admission, this time from a shipping industry senior executive, indicating that the period of windfall profits among global shipping players is coming to an end.
In a recently published Supply Chain Matters News Capsule, one item we included was highlights of a Bloomberg published report with the headline indicating that the global shipping boom has ended.
This report based its conclusion on the continued decline of global ocean container spot rates due to lower consumer demand for products and consequent reduced global shipping volumes. Business, supply chain and transportation media have all reported this week that the cost of shipping a container of goods from China to the U.S. West Coast has now declined to the lowest level in more than two years.
We neglected to mention another observation that came from the CFO of influential global container shipping conglomerate Maersk.
A published report last week by SHIPPINGWATCH highlighted recent remarks to Danish media from Maersk CFO Patrick Jany. The report’s opening statement indicates: “An exceptionally profitable period in the shipping industry is coming to an end, during which companies such as Maersk have benefitted excessively from sky-high freight rates.”
Jany, assumed the role of CFO in May of 2020, providing a resume of successful profitability growth through M&A efforts. Hence is the optimism in Maersk being more able to provide consistent future revenues and earnings, beyond cyclical business patterns.
Acknowledging that the global economy is headed toward recession and consumers have dramatically shifted their buying, Jany reportedly indicated in the media interview that the shipping giant is convinced that previous wide fluctuations in earnings and returns will not occur after this current cycle, because of the ongoing transition from a shipping company to that of an integrated logistics group with sea, land, air and storage service offerings.
More and more shipping and logistics companies, along with global investors, will come to the same conclusion regarding the likely end of a period of shipping and logistics services windfall profits.
However, what remains are the implications of what has occurred since the start of the global pandemic. Eight global shipping lines organized into three major capacity controlling alliances now control upwards of 80 percent of global wide capacity. Major online retail platform providers such as Amazon, Alibaba and others have reaped the benefits of controlling their own managed transportation, logistics and last-mile delivery services for customers and for hosted merchants.
Now, major governments along with smaller regional logistics or industry specific transportation services companies are becoming much more concerned on the notions of global-wide integrated logistics M&A moves.
As we highlighted in a posting in August, observations that EU based shipping lines hardly pay any taxes on windfall profits because taxes are assessed according to the size of ships as opposed to earnings is fueling backlash.
A growing tide of geo-political risk dimensions have led to declarations of deemed national policy or economically critical industry supply chains. The newest developments are that of the U.S. and the EU. Notions of domestic, nearshored or more favored trade with “friendly” nations are being put forth and industry players are beginning to make strategic moves.
This is an emerging cycle in the rethinking of global trade and supply network sourcing from much broader strategic, economic security or business continuity dimensions.
Transportation and logistics services are not likely to be immune to such dimensions and this is the area to watch in the coming months.
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