Ceren Altuntaş Vural: Container shipping’s moment of fame and the quest for resilience

Since the box’s invention in late 1950s, container shipping has been one of the largest segments in maritime transportation. Despite this significant role and the large tangible components such as the army of colorful containers, large ports, huge gantry cranes, ever growing ships the industry remained rather invisible until lately. Well known by the sector’s large companies, international governing bodies and vast labor force, it is even sealed with a prejudice of being ‘conservative’ in lightest terms, referring to resistance to change. However, the Covid-19 pandemic and its aftermath changed this picture fundamentally.

Empty shelves at supermarkets, consumer hoarding of essential supplies, unreliable delivery times of online orders and the soaring prices attracted the attention to shipping which have been treated as an endless pipeline that moves goods around the world as if they are liquids that flow without friction for a long time. Container shipping, since then, is cited together with border closures, canal blockage, geopolitical crises, tariffs, broken bridges, port strikes, low water levels, hurricanes, piracy and armed attacks. These are not new to centuries-old maritime transportation, but the increased frequency and the intertwined nature is affecting the industry far more than ever. 

Resilience has become crucial for container shipping in these turbulent times. The segment was relatively better off with respect to available supply capacity in early 2020. Expecting the global merchandise trade to drop radically, liners reduced capacity as much as they can through scrapping, selling or speeding up off-hires. However, the quick recovery in global demand after the second half of 2020 coupled with the reduced capacity resulted in increased rates, lack of space and lack of containers. The blockages in inland transportation exacerbated the situation with empty containers and port congestions. The blockage of Suez Canal by a vessel in March 2021 drove container freight rates to record high levels. The global container freight index was showing $10,377 /40ft container by September 2021 in comparison to the $1,420 average in 2019.  

Although these rates settled down as new vessel capacity came in throughout 2022 and 2023, the disruptions did not end. The year 2022 was marked with the invasion of Ukraine by Russia and the draught in Europe. In 2023, it was the low water levels at Panama Canal causing container vessels to take longer routes this time. Late 2023 and the whole 2024 was marked with Israel-Palestine war which resulted in container lines to reroute around Cape of Good Hope due to the Houthi attacks to ships passing through Suez. These disruptions evened out the excess shipping capacity and the hopes for rate reductions as well as reliability improvements in shipping services. Since 2020, the reliability of container shipping services, which is the main value proposition of liner shipping, has diminished significantly to 50% levels. 

New shipping capacity will be introduced in 2025 and 2026, yet at a lower rate. Although this is promising for a reduction in freight rates, uncertainties around geopolitics, Trump’s tariff plans and climate crisis keep resilience high on the agenda for container shipping. There are different strategies to pursue:

• Build flexibility through rapid operational transformations such as changing service providers, port calls, transport modes, container type or alliances: This is particularly relevant during capacity shortages but also a measure to tackle with the changing trade patterns. During and after the pandemic, friendshoring and supply chain regionalization became buzzwords. They will become even more important with the tariff wars and trade restrictions. Although supply chains are actually not becoming local or shorter, trade started to operate in horizontal and vertical silos to avoid the disturbances in transport networks which means bringing the nearest tiers of suppliers nearby but letting the upper streams of suppliers offshore. The recently introduced hub and spoke system from Gemini Alliance is an example for a flexible liner system with high reliability as the value proposition.       
• Build redundancy and diversify: This strategy manifested itself in expanding capacity with new ship orders, new container fleets and new port agreements. Furthermore, container lines are now diversifying their service portfolio with road transportation, rail services, distribution centers, air transportation, customs services and even e-commerce to provide logistics and door-to-door services. Vertical integration in the transport chain is seen as a control strategy. 
• Build strategic and multilateral relationships with other actors: During the times of crises, the winners are not those with the largest asset base or financial resources, it is those that have better access to alternative services, rates, routes and accurate and reliable information. These strategies manifest in the form of long-term shipping contracts and joint digitalization investments for continuous information flow between shippers and shipping lines.

The future will not be short of disruptions with the climate crisis being the biggest one. Shipping will need to adapt decarbonization measures to reduce its impact on climate and build resilience to tackle with the impact of climate crisis on shipping infrastructure. Coupled with the trade wars and geopolitical unrest, those players that implement effective resilience strategies will be ahead of competition in container shipping markets of the future.