The Importance of the International Shipping Industry!

International Shipping Industry

Even during the epidemic, the international shipping industry significance in the value chain and the transportation of resources and goods worldwide was emphasized, probably most prominently.

“Since the start of the epidemic, the shipping sector has effectively acted to maintain the integrity of the system and thus the safety of the supply of goods,” as mentioned in the latest reports.

The Shipping Industry During Pandemic

Many sectors, particularly the shipping industry, have been severely impacted by the pandemic in 2020. As per the United Nations Conference on Trade and Development, global maritime trade is anticipated to drop by 4.1%. 

According to the institution’s newest research, the latest wave of COVID-19, which interrupts supply systems and industries, may produce a greater downturn. It has already wreaked havoc on supply chains, transport networks, and ports, resulting in a sharp drop in cargo volumes. The sector’s short-term prospects, according to UNCTAD, will be difficult.

Even in the short term, though, there are reasons to be positive. To begin with, there have been more questions when the virus initially broke out in March and governments began to shut their borders. In comparison to then, the dust has settled. There was also a concern for a complete shipping halt, which did not occur. On the contrary, the most recent data is highly encouraging.

Global container shipping trade increased by 2.7 percent in the third quarter relative to the previous year, and the year-to-date volume is only 3% from the period in 2019, following a 6.9% increase in September, the second straight month of growth.

If global economic production rebounds, UNCTAD anticipates marine trade growth to return to positive territory in 2021, growing by 4.8 percent. However, it emphasizes the importance of the maritime transport industry adapting to change and being well equipped for a post-COVID-19 environment.

Obviously, there are still far too many uncertainties. Let’s have a look at the importance of the international shipping industry in 2021.

Percentage of World Trade Carried by the International Shipping Industry

The flagship report by the United Nations Conference on Trade and Development (UNCTAD) includes an extensive compilation of statistical data as well as an assessment of cyclical and structural challenges facing seaborne trade, port facilities, and shipping. According to it, around 80% of international trade is carried out by the international shipping industry, with the proportion being even greater in most developing nations.

Enhanced Discipline of Carriers to Persist

Through 2020, even in the worst periods of the outbreak, when cargo volumes fell, the same was not true of freight rates due to more diligent operators who better handled their capabilities, slashing capacity on the basis of smooth sailings, minimizing cost, profit margins rather than market share, using lower prices of fuel. 

Thus, even at the peak of the outbreak, spot rates were steady whenever the cargo was less. This discipline must continue in 2021 and is predicted to persist, which poses great importance on international shipping. The supply of commodities and goods is crucial to keeping the economy properly running.

Destabilization in Freight Rates

The biggest repercussion of the container shortage is an increase in freight charges. China was the first country to recover from the outbreak, persisting in manufacturing and exporting even as other countries tightened their prohibitions in March 2020. Containers have become exceedingly valuable due to uneven restoration rates and increased customer demand.

From Asia to North Europe, spot freight rates were almost 260 percent higher in December 2020 than in the past year. The cost of shipping a 40-foot container increased from roughly $1,400 in April 2020 to nearly $5,000 in April 2021.

Numerous shippers have claimed that they are unable to fulfill the global demand for their goods. The carriers currently have the upper hand since they can choose to make the trade with greater shippers. Major carriers such as Maersk have started using the spot market to increase their profitability in the current situation.

Companies in the freight business have increased their investments in digitalization as a result of the outbreak. If this helps to increase productivity and solve the container issue, freight costs may begin to stabilize. On the other hand, instability in freight rates appears to be more likely for the rest of 2021.

Important Ports and Trade Routes

Some ports will be recording high volumes of traffic. This is especially noticeable in ports throughout the United States. This is mostly owing to the profitable nature of the China-North America trading route.

In December 2020, the Long Beach/Los Angeles port in California had a 23 percent rise in traffic over the prior year. Even amid the outbreak, the port is experiencing its second busiest time in its history. Although the ports on the east coast of the United States aren’t as busy as those on the west, major cities like Charleston, SC, and Savannah, GA, are seeing significant traffic influxes.

The additional traffic is adding to the backlog in the ports along these congested routes. Major carriers like Maersk and MSC have temporarily removed certain carriers from their usual schedules to alleviate the overcrowding.

Prominent ports and shipping lanes will continue dominating as the shippers are trying to fulfill consumer demand, and carriers keep on exploiting freight rates.

More Investment Decisions in Digitalization are Required

According to the survey, the outbreak has demonstrated the importance of digitalization and reducing papers in the shipping industry, as well as in ports, perpetuating the need for electronic documentation standards and synchronization. Supply chain digitalization and real-time traceability are almost a given these days. 

Small companies that are unable to keep up with this trend in 2021 are likely to lose their competitive advantage. Increased digitization will also result in increased cybersecurity risks, which businesses will need to be aware of in 2021.

As we move through a turbulent year in the international shipping industry, the value of a seasoned third-party logistics provider is more apparent than ever. Shippers struggle to stay competitive, relying on their knowledge, competence, and crucial industry networks. Sustainability will be an important goal for the sector, much like decreasing costs, growing profits, and expanding market share.

International shipping industry article and permission to publish here provided by Daniel Choi. Originally written for Supply Chain Game Changer and published on June 17, 2021.

2 thoughts on “The Importance of the International Shipping Industry!”

  1. The food crisis caused by war in Ukraine and inability to transport grain because of the blockade of Ukraine’s ports has made the necessity for the international shipping industry even more vivid.

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