Shipper perspective: challenges and opportunities in ‘turbulent’ container market

“Last year was a turbulent year in terms of international logistics,” Vinmar International global director of marine transportation Alessandro Menezes tells Container Shipping & Trade.

Assessing the container shipping market conditions both in 2019 and 2020, he highlights several challenges and opportunities for both ocean carriers and shippers.

While there are plenty of challenges, Mr Menezes points out Vinmar is fortunate to be in a sector that has strong export volume growth which is expected to remain so for the next two to three years, bringing opportunities for Texas-headquartered Vinmar and its business partners.

The company ships plastics and petrochemicals products to customers with a wide geographical range in key markets globally. Mr Menezes says, “We are in a unique industry – I am lucky to work for a company that is well positioned to significantly expand our export volumes out of the US Gulf, with multi-billion dollar investments in the petrochemical industry during last few years”.

The industry’s strongest trade lane in terms of volume growth has been on the transatlantic eastbound and transpacific westbound container liner services mainly out of the US Gulf to EMEA (Europe, Middle East & Africa) and southeast Asia markets.

A ‘roller-coaster’

Considering the market challenges for the container shipping industry last year, he says, “It was like a roller-coaster in which shippers had to quickly try to understand decisions being made, take control and manoeuvre actions that allowed the company to continue to offer cost efficient and added value solutions to deliver products overseas. Last year, we saw ocean carriers aggressively trying to manage their deployed capacity, especially at the end of last year.

“In major global container shipping tradelanes such as Asia-Europe, carriers managed their capacities in a way that spot rates faced double-digit hikes at the end of 2019. This upwards trend might only reduce temporarily as we enter the slow season following high demand when customers try to reach their market before the Chinese New Year, which was extended this year due to the coronavirus crisis. As of Q2 2020, even in the transpacific lane, I believe ocean carriers will continue to place rates under pressure in 2020 to cover their higher bunker costs.”

Mr Menezes comments, “There has been an adjustment of global vessel capacity but there is still low demand growth and even with the US-China trade war, I still believe it will be about the supply/demand balance. There will be an uneven impact on freight rate development and how much the shipper will pay, but in general a global trend of idle capacity means it will be very hard for carriers to fully recover the incremental fuel costs resulting from the IMO 2020 lower emissions mandate. It looks like it will be another very turbulent and unpredictable year, but it also brings opportunities for ocean carriers to review their service network position in the marketplace to adjust it to demand.”

Regarding the US-China trade war, he says container shipping trade flow will still depend on China due to their strong demand market but points out there has been a shift in volumes to other southeast Asia and Far East countries.

“Shippers from most industries including the plastic resin exporters had to review their global reach. Some Asian markets outside China faced a volume growth not seen prior to the trade war period. The longer the war continues, the more difficult it will become for global companies to restructure the supply chain to what it was before,” comments Mr Menezes.

Indeed, he points out the fast growth of southeast Asian connectivity to trade lanes – on the transpacific, the number of direct calls in 2019 versus 2018 almost doubled from US west coast gateways.

Mr Menezes emphasises “The trade war is the biggest threat to trade – more than US-Iran relations and the China slowdown itself. I believe the trade war has had a significant impact on the US west coast ports of Long Beach and Los Angeles – they have suffered more than US east coast ports, while rail roads have suffered hard as the tariff war has led to lower demand. Truckers have also struggled after a recent investment in new truck drivers’ capability deployed just before the trade war kick off. It will be hard for some players in the market, specifically on the US west coast, to fully recover their share following the trade war.

“Shippers selling products to China are looking to sell to other markets and importers sourcing from China are also trying to source from other countries.”

Explaining the impact of the US-China trade war on Vinmar, he says the company has investigated global sourcing outside the US. “From a sourcing and sales perspective there has been an adjustment in trade lanes because of it. “A trade war between two of world’s largest economies significantly impacts our business. When companies exporting commodities are hit by these tariffs, we are left with no choice but to adapt to it” Mr Menezes says.

The trade war in China has given Vinmar the opportunity to grow its trade in other areas. Mr Menezes says, “We have seen volume export growth in most of the hundreds of seaports we move our products to.”

“It became important to focus on global distribution to be near our customers and position ourselves in markets that present enough demand for our products. The company has invested in highly qualified personnel and continuously looks to expand distribution to be closer to the customer. Our company’s president and chief executive is discussing ways to support environmentally friendly initiatives in conjunction with our vendors, including the container shipping lines we ship most of our resins with.”

Alongside the US-China trade war, implementing the 2020 low sulphur cap has had an impact on shipping lines, as those without scrubbers need to pay higher costs for low sulphur fuel. Nevertheless, the impact on freight rates, as carriers try to cover these costs, has perhaps been smaller than expected, but large enough to create problems for the global plastic resin markets due to the continued decline in global market prices.

Mr Menezes says “The increase in spot rates in December 2019 was smaller than expected. What I hear from the marketplace is that a lot of carriers mitigated their planned rate increases by dropping the base rate and keeping the total cost at a price that makes sense to the demand surplus balance while implementing bunker related surcharges. I have been a product manager for several years and the fundamentals remains the same: total freight cost must be adjusted against demand at a certain point preventing ships sailing with too much empty space. Empty containers must be positioned back from surplus to supply areas such as from the US to Asia.”

He says a factor behind current freight rate volatility is that carriers are trying to implement actions and learn at the same time. Mr Menezes sums up “I believe it is up to the market to decide what the shipper pays. It is very complex – carriers are trying to learn how much each market, each commodity, each customer may afford on the go.”

Long-term carrier relationships

Turning to Vinmar’s own carrier strategy, he explains that the company’s priority is to have long-term relationships over short-term gains. Mr Menezes says, “We are not only a trading company, but a project marketing and distribution company with a long-term commitment to adding superior value for our customers. We believe constantly changing vendors for a few pennies in savings will end up costing more in the mid-long term.”

Long-term relationships have also led to benefits for Vinmar – including trust and VIP treatment when an emergency requires unplanned support. He fosters a direct relationship with not only the senior management staff within the shipping line but also works proactively with middle management.

Mr Menezes continues “We have a strong coalition with trade management within carriers and contract directly with them. We believe that as manufacturing slows down, we are a unique case of strong volume growth hence very appealing to the ocean carriers, enabling an environment that allows us to solidify our business partnership with the ocean carriers. Carriers have enjoyed our volume growth support by double or even triple digits.”

Vinmar ships not only from the US but globally. It has a strong business relationship with all major global container shipping lines due to the thousands of TEU moved by them. “We try to understand the risk level we have with each trade lane and capacity deployed on a lane by lane basis, understanding aspects a normal shipper usually does not focus on. For example, if I concentrate all my exports with three carriers and if they are all members of same alliance then my risk is bigger, as blank sailings and port omissions are the same for all of them. We try and understand what they expect from us.”

He emphasises that the partnerships Vinmar has established with its carrier partners is key for future projects.

Snapshot CV: Alessandro Menezes (Vinmar)

Mr Menezes is director for transportation at the Vinmar Group headquartered in Houston, Texas. He joined Vinmar in 2016 to source transport for thousands of TEU globally. He has 16 years’ managerial experience within the liner service and container shipping industry, moving from the carrier to shipper side in 2012.