An interview with Alphaliner Senior Shipping Analyst Jan Tiedemann about the pandemic years as well as current and upcoming trends in the market
Jan, take a look back at the coronavirus era …
With closed ports, idle factories and a blocked Suez Canal, the initial phase in particular caused major problems in the market. But then demand for consumer products skyrocketed. The coronavirus stimulus payments in the US amplified this effect, and the congestion of ships in ports artificially tightened the supply of tonnage, so to speak. This drove freight rates up a lot, especially on the important Asia-Europe and transpacific routes.
And how do things look today?
Supply chains are more stable, and freight rates are normalising to a certain extent. But their long-term development will depend on the particular trade. While transatlantic trades tend to have contract rates, other trades tend to have spot rates. Inflation and the war in Ukraine have led to a certain degree of restraint among consumers and in the economy as a whole. It’s unlikely that we will return to pre-pandemic conditions in the foreseeable future. Production has shifted, and we now have new regulations on environmental protection, such as the EEXI and CII regulations, both of which aim to lower the CO₂ emissions of ships.
How is the shipping industry changing at this time?
Customers are focusing more on reliability and are locking in long-term, stable rates. They are showing a willingness to pay more for quality. We are also seeing that cargo owners are calling for a reduction in emissions even though they know that this will entail additional costs. There are associations of shipping companies that have set themselves the goal of greatly reducing their CO₂ emissions over the next few decades.
Shipping would like to be climate-neutral by 2050. Will alternative fuels establish themselves and offer a long-term solution?
At the moment, liquefied natural gas (LNG) and methanol are very popular. LNG is easy to burn and generates about 20 % less CO₂ than conventional fuel. But it’s also more complicated to handle and more expensive. Conventional methanol would emit fewer pollutants, such as sulphur or particulate matter, but it’s only carbon-neutral when produced with carbon-neutral energy. The challenge will be to produce carbon-neutral fuels in sufficient quantities. I don’t think it will be possible to do that with wind or solar energy alone. As I see it, it will only be possible for shipping to achieve climate neutrality by 2050 using nuclear power, which is carbon-neutral and could be used to produce synthetic fuels.
Container ships are getting bigger and bigger. When will the maximum size be reached?
Over the last decade, ships have hardly grown any bigger; they’ve only been optimised. While vessels have become more round-bellied and slower, the engine rooms and tanks have become smaller – all to make more room for containers. In theory, it would be possible to build bigger ships. But the economic advantage would be so slight that there’s currently not much interest in the industry in doing so.
What can shipping companies do now to enjoy long-term success in the market?
Environmental protection will be a big issue. I think that each of the major shipping companies will have to have a plan for this. Whether it’s reducing local emissions, such as particulate matter and soot, or global emissions, such as CO₂. Associations of shipping companies, such as the Zero Carbon Alliance, have set themselves the goal of shipping a large proportion of their freight volume in a carbon-neutral or at least a low-carbon manner within the next few decades.
Where do you see Hapag-Lloyd’s advantages and disadvantages vis-à-vis its global competitors?
Hapag-Lloyd has enjoyed solid growth and consolidated its position as a top player in the market. The company has done a good job integrating other shipping companies, such as UASC, but also smaller players, such as CSAV, NileDutch and Deutsche Afrika-Linien. So far, the downsides have been its weak position in the port and terminal portfolio. However, Hapag-Lloyd has largely remedied this with acquisitions – such as those of the Spinelli Group, SM SAAM and J M Baxi Ports & Logistics – as well as with its successful cooperations with Eurogate, Tanger Med, Wilhelmshaven and, soon, Damietta. But there is still potential for development in these areas.
What do you think the big innovations will be in our industry in the years ahead?
New generations of ships will have a lot of advances on the hardware side. In addition to cleaner fuels, this will also include optimisations to lower energy consumption. On top of that, digitalisation is making huge strides in the shipping industry. Decisions will be based less on gut feeling and more on data and KPIs. In addition, it is likely that market intelligence will strike a better balance between efficient delivery and low CO₂ emissions. For example, if a terminal will only be available a few hours after a ship is scheduled to arrive, it can slow down and thereby conserve fuel.
ABOUT JAN TIEDEMANN
Jan Tiedemann is a Senior Shipping Analyst at Alphaliner, a leading information and consultancy firm concentrating on the global container market. He has been with the company for more than 15 years and specialises in research and market monitoring in the fields of liner shipping, seaports and terminal development.