Overview
For the last decade and a half, the container shipping industry has been characterised by poor financial returns. Conventional wisdom holds that capacity expansion and poor utilisation have been to blame. However, there is also evidence that most container vessels are sailing reasonably full, despite large programmes of new build. This raises the question whether other forces are at work affecting the competitiveness of the industry. In view of possible consequences for employment, trade, industry and port policy, research is needed to understand the appropriate responses.
The aims of the ASDSS project were to assess the supply/demand situation for container shipping and the current competitive position of the EU shipping industry, and to evaluate industry responses, including implications for flag selection, employment, port selection and policy.
Funding
Results
The study concluded that pressure on shipping rates and poor profitability have been substantially due to intense cost-based rivalry, while capacity utilisation has been good. On every major trade route, over 30 commercial entities compete with services that are not strongly differentiated. Cost improvements have been easily copied across the industry and then competed away through lower rates to customers. Although there has been significant partnering between carriers, this has focused on the use of vessels, while the resulting joint capacity is still divided up between many companies. Operators continue to respond to the situation by concentrating on cost reduction. As a result, the outlook is for continued poor profitability in the industry.
EU operators have increased their market share in recent years, while the proportion of the EU owned fleet that has flagged out is lower than the world average. As cost pressure continues, EU seafarer employment may be affected by further flagging out, although this cost category accounts for less than 5% of a major container line's costs. Instead, the main future impact on EU jobs will be on-shore losses due to the rationalisation or merger of operators, since on-shore personnel account for around 20% of costs.
As average vessel size has increased, total port calls by container vessels are decreasing. As a group and individually, the top ten North European ports have seen relatively small changes in overall market shares, while the top ten Southern European ports have gained share from smaller ports.
No evidence was found that container operators are particularly high risk in terms of shipping accidents, and the accident profile of EU container operators is comparable to that of non-EU operators. Therefore, policy on maritime safety would seem to be adequate to cover container shipping.
Policy implications
ASDSS concluded that European operators are well positioned, either as emerging global players or niche operators. However, owing to continued cost competition, they may continue the trend of flagging out to reduce crew costs. The next major cost rationalisations will hit on-shore personnel, through economies of scale, IT solutions and process redesign. The challenge for policy is to encourage EU operators to retain their on-shore control centres in Europe, rather than relocating them e.g. to the Far East.
In addition, policy action is needed to improve land transport connections to major container terminals, since the increased volumes of inbound and outbound boxes associated with ever larger vessels are leading to bottlenecks and inefficiencies around these terminals. Intermodal solutions involving rail and barge would be significant in taking the pressure off the dominant road links.