Listen: The Decisive | Episode 25 - Port A to Port B: Get Ready for The World's Biggest Container Shipping Conference

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Kristen Hallam  

Hello. I'm Kristen Hallam, your host for this episode of The Decisive podcast. Today, we're talking about the pressing challenges facing the ocean container shipping industry nearly 5 years after the onset of the COVID-19 pandemic. We'll explore how external shocks like COVID and like the geopolitical tensions we're currently seeing have shaped the landscape marked by poor reliability and historically high rates. We'll also delve into the evolving mindset of ocean carriers who, once committed to schedule integrity, now leverage disruptions to their advantage. With mega ship deliveries on the horizon and the potential for a tighter market in 2025, is service consistency a realistic expectation moving forward? And to discuss these issues, we have an absolute industry legend, Peter Tirschwell. Peter is Vice President, Maritime Trade and Supply Chain at S&P Global Market Intelligence. He is responsible for all content appearing in Journal of Commerce publications, websites, events and other products. And he's the Founder and Chair of the Annual TPM Conference in Long Beach, California, the world's largest container shipping conference, which is coming up in March. Peter, welcome to The Decisive podcast.

Peter Tirschwell  

Thank you, Kristen, for having me. It's a great pleasure to be with you.

Kristen Hallam  

Peter, let's set the scene here. What is the state of container shipping as we head into 2025? And how did we get here?

Peter Tirschwell  

Kristen, I would say that the state of container shipping is very disrupted, very unsettled, very unpredictable, very volatile and very risky. And if you had asked me that same question in 2019, I would have said none of those things because the ocean container supply chain, for lack of a better term, for many years, pre-COVID was characterized by minimal disruption, low freight rates, fairly high schedule reliability when it comes to vessels arriving and departing ports on time. And from a supply chain point of view, whether you're a retail company or you're a manufacturing company and you depend on ocean container transportation for your supply chain, this was the best of all worlds. You were paying relatively little and you were getting a pretty decent product in return in the form of reliable service that you could then bank on in terms of your manufacturing inputs, getting product to your stores, getting product to retailers who may be your customers. And all that completely changed during COVID, obviously, when we saw the biggest supply chain disruption that the industry had ever seen going all the way back to the origins of container shipping in the late 1950s. But then interestingly enough, while COVID ended for society, and we now get on airplanes without masks, our lives are minimally disrupted because of COVID, okay, maybe we go get our jabs every once in a while. But for the supply chain, actually, COVID was not the end of supply chain disruptions, serious ones. So case in point being completely unrelated, but nevertheless, historically significant disruption occurred almost exactly a year ago when shipping came under attack literally in the Red Sea, and that led to the Suez Canal being all but closed to the major East-West container services, the vessels having to route around Africa. That was a huge development. Obviously, it took massive capacity out of the market. It increased transit times. It led to further deterioration in lack of reliability. So anyway, you put all that together, and that situation is still going on. And now we have even more disruptive events on top of that, possibly coming from the reelection of Donald Trump and the possibility of tariffs, increased tariffs that could have very meaningful impact on the supply chain just over the next, say, 3 months or certainly into the first half of 2025.

Kristen Hallam  

As you say, no shortage of disruptions. It's quite the list that you walked us through there. With overcapacity looming due to the upcoming mega ship deliveries that I mentioned in the intro, how should shippers prepare for potential fluctuations in shipping rates?

Peter Tirschwell  

This is another kind of "sea change" you might say, to use a thoroughly hackneyed cliche, but another big change in the landscape where the fact that there is a glut of container ship orders and there definitely is in normal times in prior eras of the industry would automatically mean massive overcapacity, carriers going after each other's cargo, freight rates being driven down. And that dynamic still very much exists. But the ocean carriers as an industry have more cards to play than they used to. So they used to be pretty much helpless in the face of overcapacity. There would be an automatic cause and effect between overcapacity and low freight rates and you had overcapacity for many years. And as a result of that, you had low freight rates for many years and you had minimal ocean carrier profits. Now that situation has not completely gone away, but ocean carriers came out of the pandemic with a bit of a different mindset, having for the first time, literally in their history, having become significantly profitable. They liked the idea of making money. It was new to them, somewhat of a new concept. And now they are determined to continue to churn out profits to the extent that they can. And that means that they're going to be more aggressive in ways that they hadn't been before. On the very recent earnings call of the #2 carrier in the world, publicly traded company, the CEO said pretty clearly to investors, don't get overly concerned about overcapacity because we, as ocean carriers have levers that we can pull to mitigate that. That would include slowing down the fleet. The ships are going pretty fast right now, especially to get around Africa to maintain schedules. And if they slow the ships down, what that does is that it removes capacity from the market. It mitigates overcapacity. There has been a very minimal level of scrapping, vessels being scrapped. And so there are more vessels that could be scrapped, which takes capacity out of the market. There is minimal idling of ships for maintenance and repair because we're still in a situation in 2024, where the volumes have been very strong this year, and the fleet is fully deployed, which still costs a lot of money to charter a ship. It costs a lot of money to buy a secondhand ship, even though those prices are moderating now, minimal scrapping is going on and minimal idling of ships. In other words, a fully deployed fleet at the moment. But the moment that volumes begin to back off, and I think that is an anticipation for 2025, you are going to see ships, container lines returning chartered ships back to their owners saying, okay, you take it. I don't need it anymore. You're going to see increased scrapping. You're going to see slow steaming be reintroduced in a more meaningful way, all of which will offset the addition of all this capacity. Now of course, there are any number of voices out there in the market right now, Kristen, who believe that none of that is going to be sufficient to offset the quantity of tonnage that is coming into the market. And they also say and correctly that if, for example, there were to be some kind of deal made in the Middle East and as part of that deal, the Houthi rebels in Yemen agreed to stand down and no longer fire missiles or otherwise attack shipping, then now the container services that traditionally went through the Suez, but are now going around the Cape of Good Hope that those ships would return through the Suez -- and these are ships that are going from Asia to the Mediterranean to Northern Europe and also to the East Coast of North America. And the moment that happens, if somewhere in the neighborhood of 10% of global capacity came out of the market when those diversions started, 10% of capacity would pour back into the market. And that would be a capacity infusion that no ocean carrier acting individually or through an alliance would be able to stand against in terms of that having a pretty devastating impact on freight rates. So I think that's probably the thinking around that. So that's where we are at the moment, late November, headed into the end of 2024.

Kristen Hallam  

Now Peter, you mentioned the incoming U.S. administration of Donald Trump, those evolving U.S. trade policies and tariffs. How might we see that playing out in global shipping strategies and costs for shippers?

Peter Tirschwell  

Trump imposed tariffs during his first term. He is a deal maker. So if he is threatening 60% tariffs on China and 20% tariffs on the rest of the world, which he did during the campaign, it's unclear whether those will be implemented or when or if they will become part of a deal that is made with other countries that might address other issues. But there are any number of importers into the U.S., for example, who aren't wasting any time, wondering whether that is going to happen or not in the sense that when we talk to freight forwarders, they're telling us that they have seen a significant uptick in bookings of cargo and also in inquiries. Now you have to remember that back in 2018, at the end of 2018, President Trump had threatened very high tariffs on China that would take effect as of January 1. That caused a short, sharp surge of imports that actually created a short-term congestion at the ports of L.A. and Long Beach, which are the largest import gateway in North America for Asia cargo. So you had a lot of importers that were like, okay, we've got to get cargo into the country before January 1 or else we're going to be subject to much higher tariffs. And we've got warehouse space. We've got the ability to get it into the country and hold it. So that's what we're going to do. Well, you're going to see that playing out. Now you are seeing it already playing out. Exactly how significant that's going to be, to what degree it impacts the freight rate market because annual contracts get negotiated in the spring. And if it's a really strong surge, that might drive the spot rates up and the spot rates being high will then influence the levels at which contracts are signed. The question then becomes how strong will that surge be? That is also not known. There is an uptick, yes. Some freight forwarders are telling us they are seeing a big uptick, but there is also a certain level of skepticism out there that actually it's just going to be a relatively minor bump. And so it's not really known yet, Kristen, how that's going to play itself out.

Kristen Hallam  

Now another potential disruption, if we want to call it that, could be another strike by the International Longshoreman's Association. Now in 2024, they did have a strike at the U.S. East Coast and Gulf Coast ports. So opposite side of the U.S. from what we were just talking about. In 2025, there's the potential for a new ILA strike over automation. How is that potential strike influencing how shippers and carriers are preparing for 2025?

Peter Tirschwell  

That is a good question. So is there a potential for another strike, which would occur around January 15? Because when they ended the strike after 3 days at the beginning out of October, they agreed to extend the existing contract until January 15, 2025. to see if they could resolve the differences with management. Now those differences are all but irreconcilable when it comes to automation. The 2 sides are diametrically opposed and that, therefore, is leading people to accurately think that there could be further disruption as a result of that. All true. However, what we saw in October was that the strike had gone on for 3 days. And the last thing in the world that the Biden administration wanted to see was a lengthy port strike that was going to create economic disruption during the campaign, possibly exacerbate inflation. And as a result, they intervene directly, and it was through the efforts of the White House that the deal was made that ended that strike after 3 days. So that was not labor and management coming together and saying, okay, we're going to agree to this, and it's time to end the strike. No. The 2 sides hadn't talked since June and never talked in the run-up to the strike or during the strike. It was only the White House that directly intervened. Now the precedent has been set, and we've written about this extensively in the Journal of Commerce, the team I lead, the precedent has been set where the White House, whoever is the occupant, is going to take a very keen interest in what happens at the ports on the East and the Gulf Coast. And so there is a school of thought that says that the management isn't even going to bother pushing the union or maintaining such a hard line position that another strike results because they know exactly what's going to happen, which is that the White House is going to intervene and the management who is ocean carriers who are based overseas in whether it's Shanghai or Marseille or Singapore or Hamburg, that really -- they're not going to get their way when they're going up against U.S. blue-collar workers who are a core constituency of the incoming President. So there is certainly a possibility that there is no strike. And the reason why there wouldn't be a strike is that the management would just throw in the towel and they would say, you know what, we're not going to put ourselves in the limelight. We're not going to get into any sort of direct situation with the White House where we could get blamed and life could be made miserable for them in different ways. So I think that actually the -- all in all, the odds of a lengthy strike in January are pretty low at this point for that reason. Now that doesn't mean that you're going to have shippers out there who aren't very concerned about the possibility of that and are not diverting some cargo to the West Coast. That is happening for sure. Because the one thing that companies will do, they cannot prepare for a disruption to their supply chain that they cannot anticipate. COVID-19, Houthi rebels firing on ships were totally out of the blue. And if it's just an event that is completely out of the blue, like a so-called black swan event, it's pretty hard to justify resilience investment in the form of, say, added inventory, buffer inventory. But if you can see clearly, the possibility of a disruption to your supply chain like the possibility of a strike because in the ILA situation, it's been known since almost a year earlier that the union was talking about a strike. So they had plenty of warning and you actually did see companies divert a lot of cargo away from the East Coast because they could see it coming. They can see this coming, too, in January. So there will be some kind of response. But Kristen, we're very close to this situation. We're talking to people who are directly involved in it, in my team, in the Journal of Commerce, part of S&P Global Market Intelligence. And that's the impression that we're getting that they had one basically fairly unpleasant interaction with the White House that did not end in their favor. And so management is going to be disinclined to get themselves into that same type of situation again.

Kristen Hallam  

Speaking of automation, I wanted to ask you about another type of technology, which is generative AI, which is coming up in every industry. What potential does generative AI hold for revolutionizing container shipping? And how can it address long-standing inefficiencies?

Peter Tirschwell  

Kristen, you're talking to somebody who is a bit of a technology skeptic, not in general, but in regard to this industry because there is a big difference between information and physical flow of cargo. So the classic example of this was back in the height of COVID in January 2022. It was January 9, 2022, when there was an all-time record of 109 container ships waiting outside of L.A. Long Beach waiting to get into the port. And at that time, it didn't matter how sophisticated your visibility system is to tell you that your cargo is sitting on this ship, but that ship is at anchor. There's not a lot that visibility system can do to help you. And there is a, in my view, a very sizable disconnect between information, which, yes, can be very useful and helpful and physical flow of cargo, which in this day and age is increasingly subject to external forces that slow it down, stop it entirely, whatever the form of disruption would be. And a lot of times, as we were talking about a moment ago, a disruption is unforeseen. It's unplanned and you need to respond, but the degree to which information can really help you respond is going to be limited until such time as we go back to the Star Trek days, you can start to beam cargo from one place to another, that would be an absolute game changer. But AI is certainly very interesting. And for many industries, AI is going to be completely disruptive and is going to be hugely meaningful in creating efficiencies in the freight supply chain world where the margins tend to be very low, companies who are running international supply chains view supply chain largely from the point of view of procurement, trying to drive down costs as much as they can. The idea that AI could somehow inject a level of sophistication into your supply chain that exceeds what you have right now and meaningfully influences your flow of goods through your system, I think that's a ways away. Now there will be all sorts of people who will take issue with that and will tell me that I'm just a luddite and that I don't understand AI. But I've been watching technology knock on the door of this industry for going on 3 decades right now. And no technology is capable of extracting a supply chain from the type of disruptive events that are affecting every supply chain. Technology's impact in this world has been relatively limited up to this point. So why wouldn't it continue to be limited going forward?

Kristen Hallam  

I love the Star Trek reference, by the way. I'm a Star Trek fan myself. Peter, in this world that you've been describing for us where supply chain shocks are becoming routine, just thinking back to what you were saying about the ILA strike, the Houthi attacks in the Red Sea, what strategies can shippers implement to build resilience against unforeseen disruptions?

Peter Tirschwell  

So I think that if you were to stick directly into the ocean containerized supply chain, that in particular, the risk that companies face, or one of the risks that companies face is that their freight rates are too low and the market moves higher. So they sign a contract with very low rates, maybe even ridiculously low rates. Why? Because the carriers offered them low rates. And the carriers offered them low rates because there was overcapacity and the carriers have a certain number of ships that they need to fill. So they offer you a low rate and a company which is approaching ocean freight from a procurement mindset is going to be more than happy to sign a contract at a low rate and especially if that rate is lower than it was the previous year because in many cases, the mantra of procurement is to drive down costs year-over-year. But the problem with that is, is that you've created risk for yourself because if the market moves and your freight rates happen to be low in your contract relative to what spot rates are, you may find that your cargo is deprioritized the way the system works. And it may be that because of some disruptive event means that capacity is taken out of the market and the ocean carrier has a clause in their contract that says that I'm only obligated to provide you space if I have that space available to provide it to you. Then your cargo, which is moving at a certain low rate relative to where other cargo might move, might get deprioritized. So actually, one of the reasons why some advise shippers to sign so-called index-linked contracts, meaning that your price is going to go up or down on the basis of the spot market. So your price is going to fluctuate rather than be set for a full year, that could mitigate that risk because if the spot rate goes up, then your rates are going to go up and your cargo is not going to be left on the dock by the ocean carrier because they're trying to maximize the revenue on their vessel. So that's a risk that you can mitigate. Another one is to diversify carriers, diversify alliances, not put all of one's eggs in one basket. And especially now because in 2025 in the first quarter, even partly into the second quarter, we're going to undergo one of these once-a-decade alliance transitions where the 2M alliance of Maersk and MSC is going to break up and a new alliance is going to form that being Maersk and Hapag-Lloyd. So Hapag-Lloyd is coming out of its prior alliance, and that alliance is going to be teaming up with MSC. And all that means is that you have ships that are coming out of their normal operating schedules and being reintroduced into a new network. And that is a disruptive period. It ought not to be very long, but it might last anywhere from 3 to 4 or 5 months maybe. And so that means that to avoid the type of schedule disruption that you might see from one company, if you have cargo on a lot of different ships, then the possibility that you're going to be seriously disrupted if things go wrong or if there are extensive delays as one alliance dissolves and then reforms, then you might be in a better position.

Kristen Hallam  

Peter, all these market dynamics that we've been talking about, how are these playing out at TPM in March?

Peter Tirschwell  

We don't actually know yet. We are putting our agenda together. I think as of today, we had something like 68 sessions on the agenda at TPM, and there are more to come. So the agenda is not complete yet. Last year, we had to completely retool the agenda in January once it became obvious that ships could no longer safely transit the Suez Canal. So that had a huge impact on many sessions in our agenda. This year, we're watching very closely the impact of threatened Trump tariffs. We're watching the dissolving and the reforming of alliances. We're watching the ILA situation very closely and exactly what the situation in the industry is going to be precisely when TPM kicks off, which will be March 2, Sunday, March 2, is a little bit unclear. But for sure, whatever the situation is, because TPM is put on by a team of journalists who are very close to the market, for sure, we're going to be all over whatever the current development is in regard to the questions that we're asking of our speakers, how we're framing subjects and panels, what we're asking our keynote speakers to address, all that kind of thing.

Kristen Hallam  

Not just disrupting supply chains, these events are also disrupting the TPM agenda.

Peter Tirschwell  

I know...

Peter Tirschwell  

Inconvenient though that might be.

Kristen Hallam  

So as we look ahead to TPM, what are some of the key themes that shippers should be monitoring to stay ahead in this ever-changing landscape?

Peter Tirschwell  

The reason why TPM has grown so much over the years. It was started by journalists with the idea of interviewing our sources in front of a live audience and having direct face-to-face interaction with the market, which benefits our news reporting. And so the value of TPM for the industry is to get really close to the market. And that means close to information and data and analysis and perspective and forecast, which is all embedded into our program and perspectives on various topics that are relevant in any given year, but also close to the market in terms of people like other people who are your vendors, are your business partners because you get so plugged into what's happening at TPM, it's such an invaluable experience that more and more people are coming every year. So to answer your question, what it really means is that when we ask what key themes should shippers be monitoring, it's whichever themes are those which happen to be dominant at any given time and what's dominant this year is going to be impact of tariffs, the impact of any further black swan event that we can't even foresee right now. And the way to manage your way through that in this particular ecosystem of ocean containerized shipping is to become an insider in that market, where your access to information is better than that of your competitors. And obtaining that is the rationale for TPM essentially. It's a conference of 4,000 insiders and growing.

Kristen Hallam  

Spoken like a true journalist. I love it. You want to be an insider for sure. You want the inside line.

Peter Tirschwell 

Exactly right.

Kristen Hallam  

And I can hear it in your voice, Peter. I hear that you're excited about TPM. But if you had to just pick out maybe a couple of highlights for our listeners, what's on the agenda so far? Obviously, it's still evolving and growing. What would those 1 or 2 or 3 highlights be?

Peter Tirschwell  

Well, there's a lot of them, but I can definitely name a few for many years of TPM, and this is going to be the 25th anniversary next year. So the event was started in 2001. And so now it's 2025. So that's 25 years later. For most of those years, all the way up through COVID essentially or even beyond that, there would never have been a reason for us to have a speaker, let alone a keynote speaker who was an expert on geopolitics because there was no impact of geopolitics on containerized shipping. We were in an era of multilateralism, of acceptance of multilateral trade as a benefit to economies. And we had not yet transitioned into this phase we're at right now where supply chains are strategic. There's national security, there's economic security associated with it and the world is realigning itself from a geopolitical perspective, all of which is having and will have a profound impact on containerized trade. So therefore, 2 years ago, we had David Petreus, General Petreus as our keynote speaker. Last year, we had Robert Gates, the former Defense Secretary and CIA Director. This year, we have Ambassador John Bolton, who was the National Security Adviser in Trump's first presidency and also a former U.S. ambassador to the UN. And you're talking to an audience of people who are in the world of containerized shipping into containerized supply chains. And they're impacted meaningfully by what's happening in the Middle East. They could be impacted meaningfully by what happens in the South China Sea. They could be impacted meaningfully by any expansion of war in Ukraine potentially. And so please interpret for us the big geopolitical events and realignments that are occurring in terms of its relevance for this world. That's what we're going to ask them. And so that's going to be an absolute highlight of the conference for sure. We announced the other day that Søren Toft, who is the CEO of MSC, Mediterranean Shipping Company. Within the last couple of years, they have emerged as the largest container carrier in the world and pulling away from the pack because the number of new and used ships that they have bought and their order book is larger than anybody else's, and we're going to have the CEO up on stage talking about a lot of things about the market that we're going to ask them about. We have the CEO of BNSF Railway, Katie Farmer is on the program, the CEOs of a couple of other big container lines, Hapag-Lloyd and also ONE, which stands for Ocean Network Express based here where I live in Singapore with the CEO of ONE, his name is Jeremy Nixon. I am going to do a conversation with him where we are going to identify several of the key moments of the industry over the past 25 years, and I'm going to get him to comment on what was important about that particular event. And so that's going to be a really interesting session. So that's just some of the highlights. There are many others. Like I was saying, we have over 60 sessions. We're going to have more. So it's going to be a jam-packed program. We're building the #1 containerized cold chain event in the world within TPM. We have a whole track, which is called TPM Academy, which is essentially a series of 45- to 50-minute courses on enabling people to level set their knowledge on key subjects. and many other speakers beyond them, all editorially selected by our editorial team, which has complete control over our program. It's a very robust editorial program that is presented at TPM.

Kristen Hallam  

You've sold me. I'm going to lobby to go.

Peter Tirschwell  

You should -- you should. It would be great to see you there.

Kristen Hallam  

Likewise, likewise. And for those of us who haven't been to TPM before, Peter, since you are the ultimate TPM veteran, what would be your top tips for how to navigate the conference, how to get the most out of it, especially with these different tracks, these different sessions, what would be your top tips?

Peter Tirschwell  

In order to get the most out of TPM, it's really important to plan it all out in advance. who are you going to see? People come there and they will do 25 meetings. They will go to 25 parties. They'll attend 25 sessions, maybe not that many, but they'll attend a lot of sessions. And the way to do it is to map it all out at the beginning so that you can see the sessions that you want and you can get to see the people that you want and you can attend the networking gatherings that you want in order to touch base with the people who you really want to see in person. There are literally tens of thousands of meetings that are taking place at TPM. It can be an overwhelming networking and information experience and people typically crawl on to the airplane after the event. They're so exhausted after having so much interaction with information and other people. But that's the value of having an entire industry all together actually in a very confined geographic area, which is downtown Long Beach and the TPM venue. So that would be my two cents on how to get the most out of TPM.

Kristen Hallam  

How to catch up with your 4,000 industry bests.

Kristen Hallam  

Peter, I know we could keep talking. It's really been such a pleasure. I know it's super late where you are, so it's time to wrap up our conversation. Any final thoughts for our listeners?

Peter Tirschwell  

No, it's great talking to you, Kristen. I really appreciate all of the research you did. You touched on all of the most important issues that are very present in this world. And so I really appreciate that. And like I said, we're gearing up to a very big 25th anniversary TPM. I'll be coming in from Singapore a number of days early. So I will be there. And I just look forward to seeing everybody there. And anybody is welcome to reach out to me if they have any follow-up questions on -- based on anything I said. And I love the interaction with the market, and I'm always learning more. I appreciate the opportunity, Kristen. Thank you.

Kristen Hallam  

Thank you, Peter. I really appreciate you taking the time to share your insights with us. And thanks to you, our listeners for tuning in. We will have a link in the description of this episode if you'd like to learn more about TPM or register for the conference. And with that, we'll see you next time on The Decisive. Thank you for listening to The Decisive podcast from S&P Global.