Container transport in 2043 | Insight into the Container Transport in the upcoming 25 years.

Rolf Bax

Rolf Bax

July 30, 2018 - 11:37

Container transport in 2043

Based on the report Container Transport in 2043 by McKinsey and TT Club, ControlPay will give you an insight into the Container Transport in the upcoming 25 years. McKinsey interviewed over 30 industry leaders representing a wide cross-section of the industry including container liner operators, terminals operators, port authorities, global freight forwarders, container lessors, financial intermediaries, suppliers of digital solutions to the transport and logistics industry, e-commerce companies, and law firms, among others.

History of container export
Global trade has exploded from 22% of global GDP to 59% in 2015 – at a time when real global GDP has burgeoned from US$17 trillion to US$77 trillion. Already riding this wave, container trade also took share from breakbulk trade. Its modularity, simplicity, resistance to pilferage, and efficiency proved far too attractive for shippers of cargo; many goods are now only transported by container. Whereas fewer than one million twenty-foot equivalent units (TEUs) of containerised cargo were moved in 1968, 182 million TEUs were moved in 2016.

Containers today transport 23% of dry seaborne trade tons. Almost every thinkable product is shipped by containers (clothes, toys etc). Consumers have benefited enormously as the real freight costs of transporting goods has fallen. However, the success of the container has not always meant the financial success of the industry behind it. Returns for the average container liner operator, container terminal operator, or freight forwarder have lagged the cost of capital over the last two decades – and only a select few players have managed to find a sustainable recipe for value creation. The lumpiness of adding capacity has resulted in over-expansion and regular boom-bust cycles, the most recent of which has prompted many line operators to consolidate: the top five liner companies had a 27% share of the market in 1996; today they have 64%

The effect of larger ships has been to concentrate cargoes in leading ports and grow the share of trans-shipment volumes. 3 Major regional ports like Rotterdam, Singapore, Jebel Ali, Shanghai, and Los Angeles have captured a disproportionate share of the growth while other ports have faced financial pressure and decline. Rapid growth had another effect: it enabled so many players to survive across so many jurisdictions that coordinating activity amongst all of them became valuable in and of itself. In such a bullish growth environment, industry players may have expected reasonable returns. But container transport has proved to be an extremely competitive business and margins have typically been short-lived.

Of course, averages deceive. Some individual companies have been able to generate returns on invested capital far more than their cost of capital over the long run. Container traffic had never declined year on year until 2009. Now, as the wave of globalisation has slowed, container growth is only just matching GDP growth. At the same time, the rise of digital, data, and analytics is creating new expectations among the end-users of the container transport value chain and other stakeholders – throwing up new strategic dilemmas and investment requirements. And other innovations like 3D printing and hyperloops may fundamentally change the geography of trade and the container transport sector’s role in facilitating it.

Future of Container Export
A ship launched today can expect to be on the water for the next 20 to 25 years. A container terminal will typically operate even longer. Therefore, looking 25 years out – to 2043 – is both essential and foolish. Indications of what the future holds can help companies position themselves for success.

Drawing on the insights of over 30 senior industry leaders, there was a general, though not absolute, consensus on five future trends:

1. The physical characteristics of the industry are unlikely to change. the container itself will still exist, container ships will continue to ply the world’s oceans

2. Trade flows will become more balanced across trade lanes as incomes converge between East Asia and developed economies, and the emerging economies in South Asia and Africa “catch up”. Also North-South trades will likely grow faster than traditional east-west trades.

3. Automation will be broadly adopted across the value chain, especially on the landside in ports, terminals, rail, and trucking

4. Digital, data, and analytics will cause a fundamental shift in the sources of value creation.

5. Industry leaders will look very different. All segments will face fundamental questions about their business models and role in the container value chain.

What will happen to containerised trade?

The tailwinds of globalisation, Asian industrialisation, and containerisation cannot blow forever. Since the global financial crisis, it is not clear whether they will continue to blow at all; they may instead become headwinds. Meanwhile, questions persist about how robotics, automation, and 3D printing as well as evolving consumer habits will change the global manufacturing footprint and whether supply chains will shorten as a result.


How will value be created?
Whereas providing the service of moving cargo from one end of the world to another via container has proved to be a challenging business, customers have benefited from the dramatic expansion of this service at a low cost to them. Indeed, after adjusting for inflation, the cost of transporting goods around the world has been falling for centuries, and the container was only the latest innovation to reinforce the trend. The paradox of beneficial cargo owners and, ultimately, end-consumers enjoying lower and lower freight costs while industry players struggle to share in the value-creation has been a perplexing one for many industry participants. That dynamic doesn’t appear poised to change, but the industry remains focused on finding new ways to create value for their customers and, hopefully, sustainable returns for themselves.

There are six ways value could potentially be improved in container transport over the next 25 years:

1. Greater economies of scale
2. Flexibility
3. Supply chain reliability and predictability
4. Consolidation and integration
5. Automation and productivity
6. Environmental performance

Who wins?

The industry today is entering a period of incredible experimentation as different players try to find a winning formula to create value. Horizontal consolidation, especially in the liner segment, has captured the most headlines as financially robust companies look to establish a stronger position in the market. Some companies are experimenting with vertical integration – offering freight forwarding, container shipping, and terminal operations under one roof at a potentially lower all-in cost. Almost everyone is trying to take advantage of the disruptive power of digital, data, and analytics, which also begs the question whether and how “digitally native” start-ups or e-commerce end-users become much bigger players in the container transport value chain. Who “wins” – that is, who creates and captures the most value – over the next 25 years is the big question, since no one formula yet seems ascendant. For all the investment in digital, data, and analytics, it is not clear if customers will pay for additional services. The demise of global freight forwarding as a standalone business has been predicted many times in the past, but freight forwarders have adapted creatively over decades.


Four visions of the future

In the absence of foreknowledge, we can only imagine various futures and the implications of each. We posit four possible futures:
– Digital disruption is a world in which the current industry is disrupted by new players who leverage digital, data, and analytics to
optimise the end-to-end value chain
– Digital reinvention envisages that the current industry digitises aggressively and provides new value-adding services to its customers
– Third wave of globalisation assumes other economies, like India and Africa, realise their manufacturing and export potential, while
digital reduces friction in global supply chains and spurs continued trade growth
– “Peak container” and consolidation imagines a future in which trade wars, geopolitical tensions, and “near-shoring” result in
the peaking and absolute decline in international trade, forcing players to further consolidate

Preparing for such a range of outcomes would be taxing for even the most agile and foresighted of companies. However, there are some “no regret” moves that industry players could make now to ensure flexibility in the future, including paying more attention to the dynamics around the end-consumer (as e-commerce disrupts retail and lastmile logistics), building organisational discipline around monitoring the “trigger points” behind different futures, and radically digitising and automating.

About TT Club

The “Through Transport” Club, or TT Club was formed in 1968 by seven early players in the container transport industry. Based on the mutual insurance model, it filled a gap in the rapidly evolving market: other insurers were willing to cover cargo liabilities from port to port, but were unwilling to cover containerised liabilities landside or the containers themselves. Today the Club insures 80% of all maritime containers, and covers port, terminal, and stevedore interests in almost half of the top 100 ports globally. TT Club also insures hundreds of freight forwarders and logistics operators, as well as other interests through the supply chain

About ControlPay

ControlPay is, with a growing staff of over 250, the largest freight audit provider in Europe. The history of our business goes back to the year 1969, with the start of a logistics consulting company resulting in different ventures in logistics and transportation until we decided to redefine Freight Audit & Payment at the start of the century. Nowadays, ControlPay supports many large multinationals with complex logistics structures in their needs for control of freight costs and freight bills. Want to know more about our services? Just contact us!

controlpay - global freight audit

 

 

 

 

 

 

 

 

 

 

 

 

 

More ControlPay content that could be useful