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Maritime Connectivity Has Not Recovered in Small Markets

Sufficient, reliable, and affordable shipping capacity is crucial for the viability of import and export businesses. Over the past three years most of that was missing due to congestion, shutdowns, blank sailings, and obscene shipping rates. Fortunately, things are improving, but problems remain, particularly with regard to connectivity in smaller markets. Under these circumstances there is merit in considering taking control of feeder capacity to support ongoing connections for exporters and importers into hubs where connectivity has been largely unaffected over the past years.

Unreliable and Unaffordable

During the past three years congestions and shutdowns leading to unreliable schedules reduced effective deployed container shipping capacity worldwide. The chart below shows schedule reliability and average global vessel delays from January 2018 through to November 2022. While there has been improvement in 2022 compared to 2021, particularly in the second half of the year, we are still nowhere near where we were in 2019.

Figure 1 – Vessel Schedule Reliability and Delays Jan 2018 – Dec 2022

The sources of unreliability have been part on the importing side, part of the exporting side. For example, the number of containerships anchored off US West Coast Ports was higher than usual in the first part of the year, while the number of vessels anchored off the US East Coast was higher than usual in the second part of the year.

Rates meanwhile showed an inverse relationship to the service levels received by importers and exporters, with 40′ container rates on the transpacific increasing sixfold between the beginning of 2020 and mid-2021. Rates did start to come down in 2022 and as at the end of the year they stood at close to pre-pandemic levels. The shipping business made about $213b in profits in 2021 and 2022 looks set to be somewhere in a similar range. Maersk, which reports full year results in early February, generated more revenue in the first three quarters of 2022 than it did during the whole of 2021.

Figure 2 – 40ft Container Rate Shanghai to US West Coast

Container Trade vs Containership Port Calls

Container traffic grew in 2021 by about 6% globally and much more in some key markets like the US, where growth was 8%. 2022 was mixed with the first half of the year showing decent growth and the second half disappointing. All up, growth is estimated to come out at a decline of 3%, again with big difference between markets. However, globally, the number of container ship port visits was down much more than container traffic. In the first half of 2022 was down 8% compared to 2019 and 7% down compared to 2021.

Figure 3 – Semiannual Containership Arrivals Globally and by Man Regions 2018 -2022

Clearly what we have been seeing is a loss of service (and connectivity) in secondary markets. While delays and congestion reduced the productivity of vessels, the total capacity deployed into the main markets was sufficient to meet demand levels. Small and secondary markets, however, suffered massive losses in capacity and connectivity, particularly parts of the African continent, Latin America and the Caribbean as schedules to these locations were reduced or “blanked out”. Blank sailings refer to (usually last minute) cancellations, whereby a vessel may omit a port on a service or cancel the entire voyage. Partly this happens in order to maintain schedule reliability but has been increasingly used as a revenue management tool. The consequence is that any cargo ends up being bumped to the next voyage. In smaller markets with less frequent services this can turn into an existential problem for exporters as well as importers. When Portland gets dropped on a US West Coast service to Long Beach, or secondary ports on a European services, importers and exporters may still be able to get their cargo moved, but when Port Louis gets dropped on an Indian Ocean service, then importers and exporters have no alternative.

The two charts below show the number of containership arrivals on a regional level. The biggest declines have been in Eastern Europe, East and Southern Africa. Asian services have generally held up, which across the Americas the picture is mixes with South America and the Caribbean seeing the biggest service reductions.

Figure 4 – Semiannual Containership Arrivals Asia and Americas
Figure 5 – Semiannual Containership Arrivals Europe and Africa

Connectivity by Port and Country

The dashboard below is based on data compiled by UNCTAD and covers port and country level connectivity through the last quarter of 2022. Clicking on an individual country or port will allow you to display how connectivity has changed. The index takes into account the number of scheduled vessel calls, deployed capacity, the number of regular services, the number of companies providing services, the average vessel size and number of connections available.

Predictably, different countries exhibit different levels of connectivity. The key origin and destination markets have high levels of connectivity, as do key transit points or regional hubs such as Malaysia, Singapore, the Gulf or Panama. There are big differences in how the level of connectivity has developed in different ports or regions. To illustrate the point we have focused on connectivity in the Indian ocean.

The next two charts show connectivity levels at selected Indian Ocean ports including in Mauritius, Reunion, Toamasina, Seychelles , Comoros and Mayotte and for comparison larger ports in India, Oman, Sri Lanka, UAE, South Africa and Kenya. Generally, we have seen the level of connectivity drop, particularly in Mauritius which due to its geographical location has seen high levels of service in the past.  Nhava Sheva (India), Colombo (Sri Lanka) and Jebel Ali (UAE) did not see any drops in connectivity during the pandemic – in the contrary.

Figure 6 – Indian Ocean Liner Connectivity Island Markets
Figure 7 – Indian Ocean Liner Connectivity Hub and Continental Markets

The reasons are self-evident. Smaller markets are more likely to see a drop in service levels, while hub locations are less likely to be affected.

The Case for Sponsored Feeder Services

The loss of connectivity in a number of economies in the Indian ocean (and elsewhere) raises the question as to whether Governments or other parties should run or charter their own vessels to maintain or improve connectivity for importers and exporters at least to hub locations if not destination markets? While generally, we would not advocate Government involvement in the provision of shipping capacity, there is some merit in considering supporting measures in smaller markets.

However, we think some key considerations need to be considered, specifically:

  • Business cas: a solid business case is required that considers benefits as well as risk, and formulates the operating model and governance.
  • Management and operation: the management of the operation and capacity should be entrusted to a team with experience in running feeder services.
  • Industry buy-in: exporters and importers need to be on board and also willing to share the risk of an operation, either in the form of capacity commitments or shareholding.
  • Impact on Existing Commercial Services: any new capacity should not make existing privately operated services uneconomical. This requires some degree of endorsement from the very shipping lines that may be responsible for the loss of service to the country in the first place.
  • Exit strategy: Governments can facilitate but should avoid getting into the business of providing capacity. Private companies run better operations, so the idea should be to make any operation either temporary or privatise down the line.

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