Container Ship “OLIGARCHS” Ask for troubles with high profits

Last updated on February 26th, 2022 at 01:25 pm

It has been quite evident that 2020 brought wrath upon everyone. Pandemic affected all the sectors severely, and shipping business is one of them. Delayed deliveries, increased fares, disruptive transportation, unsatisfied customers and whatnot, the cargo industry has suffered these consequences.
Even though the pandemic still exists, many businesses have taken a leap. So it should come as no shock that Maersk made a massive profit in 2021. It bags the number one position in maintaining a steady profit flow throughout last year. It did suffer the consequences like everyone else in 2020 but did not let it continue in the next year. Maersk even makes plans for a robust 2022 with similar kinds of profits.

Martin Kaspar, head of corporate development at German pipe maker Frankische Rohrwerke Gebr Kirchner, has a contrary view regarding the profits made by the shipping companies.
Writing in Investment Monitor, he said, “these all-time high earnings will contribute to the demise of what he called an ‘oligarchy’ of shipowners.”
According to him, these profits have a temporary thrill to them.
The logistical problems, product shortage and delivery issues caused due to pandemic in 2020 have been made up in the form of rushed deliveries and expedited prices in 2021. These have led to more gains, yet Kasper points out that this will lead to future resentment among the shipping companies.

In other news Maersk gains the largest- ever profit by a shipping company

“There is nothing wrong with earning a decent return on invested capital, especially as these companies and their shareholders are also shouldering a risk. But the excessive profits of the shipping industry these days have little to do with hard work and taking risks,” Kasper wrote.
He presumes that an unaccustomed concentration in the market due to mergers and acquisitions has been a problem for shippers.
Hapag-Lloyd bought United Arab Shipping Co, Maersk acquired Hamburg Sud, and Cosco swallowed Orient Overseas Container Line. At the same time, the big three Japanese owners pooled their box ships in the Ocean Network Express venture. The remaining companies operate in three large alliances that own more than 80% of market shares.

“We have arrived in an oligopolistic market, with all the outcomes one might expect,” Kasper said.
It has become a ruthless venture for acquiring more and more.

“With these shipping companies ruthlessly squeezing supply chains, and demand for shipping capacity being what it is, there is little chance that freight rates will come down significantly over the next year,” he further argued.
The end-user costs will continue to be higher, eventually leading to further inflation. Moreover, this avarice would affect the global economy, costing people their jobs and livelihood.
These mega-companies have neglected the consequences and wish to boom their businesses and fill their pockets at last.
Kasper further addressed the issue by saying, “While it is arguably difficult to address such behavioural patterns, given that shipping companies are famous for playing countries off against one another, flagging their ships wherever they get the best deal, the situation has become too grave to be ignored any longer,”

The actions have to be taken, and that too severely. The regulators need to restrict such behaviours and address the exemptions for competitive alliances.
It is more like the sea at play where a bigger fish devours the little ones. Shipping companies have so much to gain these days that they hardly think about the world and the consequences it faces due to their actions.
It is believed that fewer goods would be imported to Asia now, thus making sure that the concerned goods are manufactured nearby. It would save the freight costs and also the ruthless competition among the shipping companies.

Then there are always the challenges related to environmental issues. For example, the shipping industry tries to be ‘green’ but hardly does anything before having to follow the concerned regulations.

Such behaviours would eventually drag them deep down in the mud. It could brutally affect not only their stances but the world too.

Kasper concluded by saying, “When shipping companies come calling for bailouts and financial help on account of higher costs to ‘green their industry’ or cope with collapsing demand, governments would be well advised to remember [their] conduct in 2020 and 2021,”.