EARNINGS BONANZA BUT LITTLE SHARED LARGESSE
There is no shortage of reports about the record earnings that shipping lines have chalked up in 2021 and which are forecast to continue in 2022. There are few signs, however, that common user terminals will see any associated benefits.
As inflation builds and service challenges grow, as a result of erratic supply chain performance, it might be reasonable to assume that there is a case for a bit more give and take on the part of shipping lines when it comes to contract negotiations with terminals. But it seems there a few signs of this. Indeed, there is a body of opinion in the terminal sector that suggests the opposite is often the case – “with their new found wealth the lines have grown more bullish,” as one informed party puts it.
Why?
Is there an underlying anxiety on the part of lines that when ‘the party ends’ – when a flood of new tonnage swings the demand supply balance back into the old story of excess capacity – that they will suffer as a result of giving ground on terminal fees and service requirements? Or is the thinking that with all the new tonnage set to come on line this a major incentive to not allow terminal costs to escalate?
But to put it in perspective, shipping consultancy Drewry puts the combined EBIT for liner earnings in 2021 at US$190 billion and for 2022 (wait for it) at an estimated US$200 billion! Surely with this level of earnings there must be some room on the part of lines to offer a little largesse towards the terminal sector, especially when terminals have repeatedly been asked to contain costs and increase investment over the previous many difficult years endured by liner operators?
The most striking net effect of course of those difficult years has been consolidation in the liner sector which, one way or another, has ended up with more power concentrated in the hands of fewer players. This only serves to make things more challenging for the terminal sector when seeking to achieve realistic earning levels from client lines.
So, what next? Well for the sake good order it should be said that terminals invested in by lines can partially at least be excluded from this discussion – as a rule they have the security of guaranteed volume and more volume can always be added (although their status as internal cost centres always places a question mark over true productivity).
Innovative common user terminals do have some other avenues open to them that may be progressively developed in the future – for example, direct approaches to big cargo owners to secure preferred terminal operating arrangements which could possibly negatively impact the current Terminal Handling Charge (THC) arrangements applied by the lines.
Bottom line, however, liner operators may just be well advised to remember the old maxim that if you are not kind to people on the way up don’t expect any mercy on the way down!