Micro-markets for liner shipping: Two tier? Four tier? Eight tier? 

While wandering around the Twitter-sphere, I came across a comment in a logistics thread regarding vessel charters by large U.S.  “big box” retailers. This was a thing, briefly, in late 2021 / early 2022 if media reports are to be believed, but to be honest, I could never pin down names of actual vessels, $/day hires, and the like. But with all the intermodal switching difficulties that came about when throughputs began to overwhelm the system, it would have made sense to isolate boxes of high value goods, all bound for a similar destination- ideally near some type of port (maybe suitable for “feeders”- though coastwise services are pretty much non-existing) that could handle containers.   

The particular tweet that inspired this article suggested, somewhat sarcastically, that the Home Depots of the world could set up “side hustles” being “NVOs”- supply chain talk for “non-vessel-owning-common-carriers”- folks who charter out space on vessels that they don’t actually operate, and sell those slots to cargo owners. Though the person throwing down this gauntlet to the big box guys did not mean to be serious- the idea actually comports with something that we’ve heard from various theorists in a different context- that of ESG. Specifically, the suggestion has been made (albeit in the bulk shipping context, but I think that the analogies apply) that charterers might pay a premium for cleaner service. Two tier market? How about a four tier market, or maybe an eight tier market (depending on your fondness for exponents)? The flood of optimizers who are monitoring fuel consumption, quality and emissions are all heavily data-driven. So it’s not that much of a stretch to envision creation of multiple unique corridors (think about mini-versions of the Green Corridors concept- which will be applied to broader liner trades). And integrating cargo data and vessel routing is something we hear a lot about.

Then, while thinking about this, I tuned into a webinar on sailing cargo ships, a concept that is moving into reality- but for what could only be described as micro-markets, for example for coffee and chocolates, at this point. But how different is this, exactly, from an 800 TEU shipment of high end kitchen appliances destined for an affluent group of counties surrounding a large U.S. city?  On this point, one of the panel members described an inchoate ocean-going container service on a sail powered vessel (with some hydrogen fuel cells to help it along). 

Is the use of smaller niche vessels, for specific cargo SKUs and destinations, a ridiculous idea?   Clearly, bigger ships bring economies of scale in operation, that’s what containerization has been all about, right. But if the bigger ships bring about land-side snafus (after all, the vessel passage is one link in the bigger chain), then the cost to cargo movers rises. We’ve seen this over the past two years. High value cargo, with a specific geographic locus, could support higher costs to move boxes (yes, smaller ships cannot take advantage of vast scale economies). 

Liner shipping will be the subject of an upcoming Capital Link webinar, with Washington, D.C. legal expert Charlie Papavizas moderating a panel comprised of top guns at the World Shipping Council (which represents the liner trades in Washington DC, at the IMO, and probably in places I don’t know about) and from the Federal Maritime Commission (the FMC), which is tasked with policing liner shipping in the States. The FMC was recently given greater authority to monitor market practices in the recently enacted Ocean Shipping Reform Act of 2022 (OSRA 2022). It’s unlikely that their discussion will get into some of the ideas presented here, however, liner shipping is going to continue to be top of mind as we get into the peak shipping season. The cargo side is expecting more from the carriers, so this will be a very good conversation. 

To readers- if the supply chain disruptions return- when you see a news report of Costco (not Cosco) chartering their own un-named vessel, just think about whether they may be putting some boxes for Home Depot on the same ship, and whether they will be paying premium rates.