New globalization and consolidation of container transport

As consumers are changing their purchasing habits, they are re-shaping the supply chain, affecting the container transport industry, which is currently undergoing an operational consolidation process. In four chapters, the TT Club Board of Directors, along with McKinsey experts and analysis, defines the current and future of the container transport industry, with a look at the past, present and upcoming trends that are re-shaping the global supply chain.

MundoMaritimo gained access to the full report which identifies six potential sources of future value creation for the next two decades: greater economies of scale; Flexibility; Supply chain reliability and predictability; Consolidation and integration; Automation and productivity; Environmental performance.

Four possible futures

The report proposes four possible futures in this context. The first is digital disruption, described as “a world in which the current industry is disrupted by new players who leverage digital, data, and analytics to optimise the end-to-end value chain.” The second possible future is digital reinvention, which “envisages that the current industry digitises aggressively and provides new value-adding services to its customers.” These proposed scenarios follow the current line of development, where we can see an ever increasing adoption of digital technologies.

But its the third and fourth proposals which are more daring. The third wave of globalisation, “assumes other economies, like India and Africa, realise their manufacturing and export potential, while digital reduces friction in global supply chains and spurs continued trade growth.” It posits a return to the “go-go” years of the 1990s and early 2000s, followed by the migration of supply chain from China to other parts of Asia. A tidal wave of over one billion workers (again) rapidly integrate into the global economy. Supply chains fragment further, as countries specialize on the intermediate goods and manufacturing services where they have a competitive advantage. China transitions towards services and consumption and its export-oriented sectors retain their vim. Africa’s middle-class consumers awaken, and the same manufacturing renaissance might come to pass in many populous Africa countries like Ethiopia, Tanzania, and Kenya. What’s more, containerization regains its upward trajectory, as the modularity, adaptability, and “through transport” characteristics of containers proves attractive even for shippers of agricultural commodities, automobiles, and other products. The digital impact does not fundamentally change the game. Competition is still based on the availability of capacity and infrastructure at the right place and right time as well as helping customers navigate a still-complex and fragmented industry. The return of fast trade growth has ensured fragmentation remains the norm: consolidation loses its appeal as most players focus on growth investments to meet the demand. Liners push towards larger ships (30,000+ TEUs), causing further investment anguish among ports and terminals.

Finally, ‘peak container’ and consolidation “imagines a future in which trade wars, geopolitical tensions, and “near-shoring” result in the peaking and absolute decline in international trade, forcing players to further consolidate.” The study proposes a scenario where technological advances have managed to displace human workers, lowering production costs and boosting local production. 3D printing had finally come of age, and was starting to be used for

the manufacture of entire products. Advanced robotics had become cheap and effective, encouraging more near-shoring and quickly displacing millions of workers who couldn’t re-train fast enough. Mass “technological unemployment” was one of the most pressing socioeconomic issues of the day.17 Dislocation and resentment fed populist, nationalist, and revisionist political movements; trade wars were already a frequent occurrence, and geopolitical conflict didn’t seem far away. Liners that had over-extended themselves were overwhelmed by rates that did not cover their operating costs. Those in a stronger position quickly focused on consolidation as a survival strategy, and 3-4 major leading liners eventually formed. The expected digital revolution in container transport never lived up to its promise. Industry incumbents facing significant financial duress were unable to invest in the talent and technologies to make it happen, and the tech sector lost interest once it became clear that international trade was on the decline. Container transport looked little different from today – except the container ships and terminals were starting to rust, and “growth” was no longer in the vernacular. Container lines faced paltry returns, despite the thinning of their ranks. Terminals’ revenues also suffered due to declining volumes, with some able to preserve margins by automating where possible. Only freight forwarders survive after reorienting their services towards the local and intraregional markets.

Preparing for such a range of outcomes would be taxing for even the most agile and foresighted of companies. However, there are some “no regret” moves that industry players could make now to ensure flexibility in the future, including paying more attention to the dynamics around the end-consumer (as e-commerce disrupts retail and last- mile logistics), building organisational discipline around monitoring the “trigger points” behind different futures, and radically digitising and automating.

The report was developed during 2017 and includes interviews to over 30 industry leaders and experts, representing a wide cross-section of the industry including container liner operators, terminals operators, port authorities, freight forwarders, container lessors, financial intermediaries, suppliers of digital solutions to the transport and logistics industry, e-commerce companies, and law firms, among others.

By MundoMaritimo