Capacity Management by Ocean Carriers to Balance Increasing Fuel Costs
In 2021, all Trans-Pacific Ocean carriers will have to resolve two crucial concerns. The first is the maximum amount of low-sulfur service charge they will impose on the industry without losing market share. The second question is how high they will be willing to raise their prices during the upcoming annual service contract talks in the spring.
2021 Projections for import volumes
LSFO expenses must be passed on to consumers, according to representatives from the different carriers. This puts upward pressure on the market, accounting for the price difference between LSFO and high-sulfur alternatives. Carriers would have to follow a much more competitive pricing policy.
It is only through strategic management of capacity that carriers can prevent the freight rate from completely collapsing. The vessel order book will be a vital component of this strategy, and there are indicators that the global fleet of 2021 is one of the lowest in history. It is anticipated that there will be a fall in the number of 25,000 TEU mega-ships as well as the smaller 15,000 to 20,000 TEU ships using the CA – USA routes.
The primary tool for managing capacity will involve canceling sailings, mainly if bookings are weak. For example, carriers blanked 30 sailings in October and 8 in November 2020 at a time when the industry should have been busy. More of the same happened in February and will continue throughout 2021.
The role of fuel
By the end of 2020, the huge percentage of vessel owners will have switched to the more expensive diesel, which will require the imposition of specific temporary LSFO charges on short-term contracts and spot prices.
Carriers can move to more permanent bunker service charges that represent the real fuel rates at the main bunkering ports until the true market price for LSFO becomes accessible.
Such advances make determining the ocean transportation component of all-in-freight prices more difficult. The base rate will continue to be determined by demand and supply. However, the realities of a slowing US GDP, constrained imports, and low eastbound trans-Pacific trade would affect the economy.
2021 carrier strategy
According to early indications, many ocean carriers will attempt to retain prices by successfully controlling their ability. Members of the Ocean Alliance, for example, declared in November 2020 that nine blank sailings will be used in February 2021. Because of the closing of several factories in the United States, this is expected to be the slowest month of the year.