Dive Brief:
- Shipping carriers are guilty of shortsightedness in their demands for reduced fees from terminal operators, according to a new report released last week by Drewry.
- As terminals struggle with a combination of shortfalls, including softening demand and pressure from new alliances and larger ships, carriers insisting on lower fees risk reducing port investments in infrastructure upgrades.
- In light of these pressures, Drewry suggests terminal operators must actively expand to improve profit margins. Some port groups are already pursuing this strategy and investing in emerging markets such as South Asia and the Middle East.
Dive Insight:
The shipping industry is known to be struggling, but pushing partners out of business is unlikely to solve the problem.
Carriers, particularly those within the large alliances, are able to exert pressure on port terminals due to their large market share of volumes. As pricing remains volatile, carriers are passing the buck to terminal operators, which has spurred an arms race for large-vessel infrastructure and intermodal investments.
Drewry's report raises a red flag on these practices, noting that just because carriers can pass the buck does not mean they should. Arms races are never good. Over-investment can inflate supply and capacity for the sake of competition, and leave everyone struggling. Shipping lines should know this well.
