The Covid freight rate bubble has burst, and the absence of “easy money” is forcing smaller carriers and forwarders to quit the transpacific trade. According to Richie Lin, logistics consultant director at Team Global Logistics, the inflated freight rates of 2020 and 2021 attracted new players to provide transpacific services in search of quick returns. He explained: “We saw many when port congestion, a lack of labour and equipment shortages created a once-in-a-lifetime opportunity to make big fortunes.”
Mr. Lin said investment had poured into the shipping industry the same way venture capitalists poured “hundreds of billions” into start-ups still trying to find their business model and didn’t care if they got their money back. “They believed their money would be rewarded by finding another Facebook, Apple, Google or Alibaba – but had to invest in many failed companies in the process,” he added.
However, Mr. Lin said, now that the US Federal Reserve had raised interest rates, the mood had changed and the “opportunists are eager to cash-out in fear of being the last one in the house on fire”. For example, he said, some forwarders were created in 2020 and “just had relations with shipping lines to sell space, but have no real services whether in the Asia or the US”. At the same time, he added, shipping lines which focused on the intra-Asia market, such as WHL, TS lines, Westwood and CU-Lines, “all invested resources in providing transpacific services because unprecedented revenues gave every player a chance to make money and stay in the game. But the scenario now has completely changed.” Indeed, Drewry’s WCI US west coast rate fell to US$6,127 per 40ft during the last week of August, and is now 46 per cent lower than a year ago.
Mr. Lin told The Loadstar decreasing revenues had pushed smaller forwarders and shipping lines out of the transpacific trades, because “now there isn’t much profit”. Nevertheless, if smaller players are pushed out of the market, does it not leave fewer options for cargo owners? “You can say that, but space allocation is enough, because there will be bigger vessels joining to provide services,” he said.
Looking ahead, he noted how consumers were still buying, but predicted container volumes would not resume to the levels experienced last year. “Forwarders cannot survive with one tradelane; we have to diversify and integrate other services, such as airfreight, warehousing and deliveries. Just like the value investment strategy, only those willing to create value for long-term development can stay alive through numerous business cycles,” Mr. Lin added