After ‘once in a lifetime’ swings – what next for shipping and commodities?

Leading executives taking part in the Sea Asia Global Forum grappled with these changes in a wide-ranging discussion, which can be viewed in full above.

Speaking at the forum Vandita Pant, Chief Commercial Officer of BHP, commented: “It’s very interesting that in an age of disruption in the last 12 – 18 months, the kind of ‘v-curved’ of shapes we have seen on flows is quite incredible, once in a lifetime kind of depth, followed by once in a lifetime kind of rebound.”

These very strong growth rates have combined with disruption to the supply chain caused by the Covid-19 pandemic and as result BHP reckons that congestion is eating up 15% of dry bulk capacity, compared to 7 – 8% pre-Covid.

A similar, if not even more extreme situation, has been seen in the container trades and PSA International CEO Tan Chong Meng agreed that there had been a once in a lifetime dip followed by a once in a lifetime recovery.

A huge surge in demand in container shipping has been driven by consumer demand which has switched from services to “white goods” propelling manufacturers to quickly restock causing serious bottlenecks in the supply chain. These bottlenecks have had a serious impact on available capacity.

Tan explained that typical a container would do six turns a year, however, congestion has reduced this to 4.5 turns a year.

“So that’s about 20% capacity forgone. We can’t make containers fast enough, this year, the number of containers ordered, manufactured and to be introduced, will be about the same number as the last two years put together. So, people are trying very hard. And people are ordering ships is 20% of additional fleet that will come up if all the orderbook will be fulfilled by 2023- 24.

“But it’s not happening at the time when it’s badly need,” Tan explained.

Toll Group Managing Director Thomas Knudsen highlighted that the capacity crunch in both ocean shipping and air freight had spurred the take up of rail cargo services between Asia – Europe. “And now suddenly, we’re seeing real opening up between Vietnam and China as an example. And a number of other areas,” he said.

When things will start to normalise is a big question. Tan said PSA believes it will be in the first half of next year. Meanwhile Knudsen explained that while they are hoping ports and other infrastructure will open up, “the impacts will continue for a while”.

Longer terms there are questions as to how future sourcing strategies and supply chain diversification, combined with decarbonisation will play out and impact shipping.

Tan said: “I think you’ll have episodes of China plus one, because of the trade thing regionalization because of resilience, shortening of supply chain, because of looking at different ways to reduce your overall footprint, where previously was driven by cost and labour arbitrage.”

Knudsen said he thought there we some lessons that needed to be learned about diversified supply chains.

“That’s geographically, via sourcing and so on, but a T shirt is still going to be cheapest to make in Asia, that’s not going to fundamentally change. But if you’re making a $500, expensive men’s shirt, you might do it Italy. But that doesn’t fill containerships.

“So, I think some of the fundamentals will remain Asia will do well, China will do well, Southeast Asia will grow. And yes, there are some new sourcing taking place. But a lot of things are the same as they were two years,” Knudsen said.

Looking to commodities BHP’s Pant highlighted the impact of decarbonisation going forward and how infrastructure required for this will create commodities demand.

“You cannot do renewables, without copper. You cannot do electric vehicles without nickel. You cannot do huge pipelines of hydrogen….without steel, and hence, the shift of angle will be that commodities are going to be essential to the decarbonisation,” she stated.

Patrick Lee, Chief Executive Officer of Standard Chartered in Singapore, also sees decarbonisation as having a major impact on supply chains. “We recently did a survey of some of our multinational clients, and about 90% of them said that they are setting emissions targets for their suppliers. So that has a huge bearing on supply chains, and what how they’re going to be configured and how they’re going to be financed and how they’re going to be set up,” he said.