Supply Chain disruption at the time of Covid and the opportunities taken by mainstream container shipping companies have come to a point of legal litigation as these carriers took advantage of this unfortunate situation and profited in billions of dollars. 

OJ Commerce, LLC an e-commerce retailer that sells dropship products from domestic inventory of hundreds of brands. They import goods from Asia and Brazil and fulfil the supply chain needs of their end customers. They had a contract with Maersk Line with a space and price commitment of 10 TEU/week but Maersk’s failure to provide space as promised led them to move shipments on spot rates resulting in losses. 

In the view of this breach of contract OJ Commerce, LLC filed a case against Maersk before the Federal Maritime Commission stating Maersk promised that the tender of cargo under the contract shall be reasonably spaced throughout the term, but they failed, and they further refused to fulfil the existing contractual obligations. 

The FMC case document has mentioned that Maersk retaliated against OJC Commerce and sent internal orders to disengage on renewal of the contract. The decision to cut off OJC was made in retaliation for sending its threat of an FMC complaint. 

Therefore, Maersk retaliated against OJC in two ways explicitly prohibited by the Shipping Act:  A common carrier, either alone or in conjunction with any other person, directly or indirectly, may not retaliate against a shipper by refusing, or threatening to refuse, cargo space accommodations when available, or resort to other unfair or unjustly discriminatory methods because the shipper has patronized another carrier, or has filed a complaint, or for any other reason. 

As Maersk had its internal compliance training on the Shipping Act, Maersk knew that an FMC complaint was not a legitimate reason to refuse to deal or negotiate with the customer they further chose to retaliate against OJC. As a result, OJC was forced to mitigate its losses and book limited space on high prices of spot market rates which were too expensive to justify the cost of container freight. 

Maersk gave seven pretexts in an attempt to justify its illegal actions, The decision was based in part on

1. OJC’s relatively low volume commitment,
2. OJC’s lack of cargo volume in other trade lanes,
3. the availability of space in the Transpacific trade,
4. the rate levels sought by OJC,
5. Maersk past experience with the timeliness of OJC’s payment and the perceived credit risk associated with that payment history, and
6. the fact that OJC did not purchase ancillary services from Maersk.
7. OJC’s disputatious manner of doing business and its repeated and excessive threats to pursue litigation against Maersk, which threats were disproportionate to the issues between the parties and also disregarded the dispute resolution procedures and remedies for breach of contract set forth in the service contract between the parties.

Each of Maersk’s pretexts were addressed and FMC has noted that because even when the shipper is admittedly in the right, the carriers still retaliate, without remorse or fear of consequence.

The Federal Maritime Commission concluded in its report that this case is not complicated. Indeed, Maersk’s own documents and words make it clear that its violations of the Shipping Act were knowing and intentional, and the damage that they caused to OJC was massive. If OJC is not fully compensated for the damages inflicted on its business, Maersk will only be further emboldened – even encouraged – to retaliate against shippers, which the FMC has publicly stated it will not tolerate.  

These were the brief findings of fact, and the case is still in legal disputes as Maersk chose improper motivation in litigating this case,

In the view of an increase numbers of such cases where all top line carriers have shown the same distorted approach in the process of global supply chain the Ocean Shipping Reform Act of 2022 by the U.S. The OSRA was formed to ensure industry players have the right incentives and that all stakeholders in the ocean freight transportation system can have a voice, said Commissioner Daniel B. Maffei at U.S. Federal Maritime Commission.

After over two years of rising rates and overstretched capacity, the rapidly cooling ocean freight market looks set for an “extremely challenging” 2023, according to Oslo-based Xeneta. An in-depth analysis of the latest real-time ocean and air freight rates, combined with expert trend forecasts, suggests that ocean cargo volumes could fall by up to 2.5%, rates will drop “significantly” and weak demand will force increased idling of vessels. The air freight market, analysts predict, will also face a turbulent twelve months.

Out of balance

From climbing to historical highs during the global pandemic, ocean freight rates have fallen away – and in the case of spot rates, dramatically so – since the summer. Xeneta’s market report, built on the foundation of the team’s crowd-sourced data from leading global shippers, suggests there’ll be no change in course for 2023, with challenging macroeconomic and geopolitical outlooks undermining confidence.

Xeneta CEO Patrik Berglund says difficult times await stakeholders right across the ocean and air freight value chain.

He notes: “The cost-of-living crisis is eating into consumer spending power, leaving little appetite for imported, containerized goods. With no sign of a global panacea to remedy that, we’d expect ocean freight volumes to drop, possibly by around 2.5%. That said, if the economic situation deteriorates further, it could be even more.

“Allied to dropping volumes, we have a growing world fleet, with a nominal inflow of 1.65m TEU of capacity. Some demolitions will dent that growth, but we still expect an increase in capacity of 5.9%. Even if demolitions double from our current level of expectations, the industry would still be looking at an almost 5% expansion.”

Long-term woes

The upshot of that, Berglund explains, is overcapacity, necessitating an increased idling of assets. From a current position of “next to nothing,” Xeneta forecasts idling of up to 1m TEU – “maybe even more,” says the CEO.

This cocktail of weak demand, dropping volumes, and an increase in capacity will, inevitably, impact negatively on rates, says Berglund. He comments:

“We expect to see significant reductions. Carriers have proved adept at protecting and elevating rates during COVID, but with too much capacity and easing port congestion on most major trade lanes, they’ll be fighting losing battles in 2023. We could see spot rates on some key corridors drop below pre-pandemic levels during the first half of 2023, while long-term rates will fall rapidly as older, expensive contracts expire, and new, far lower contracts are signed. However, long-term rates will not drop below spot rates during the first half of 2023.

“As far as upcoming contract negotiations go, it’s imperative to keep an eye on the very latest market data to obtain optimal value. However, those talks will be difficult for all parties. The carriers will be desperate for volumes, but, at the same time, the shippers won’t have the high volumes that unlock the best prices. What we might see is that Freight Forwarders are the big winners, as they can find a sweet spot, serving the SMEs while playing the short market against carriers. Regardless, there’s both opportunity and challenges ahead, in the short- and long-term.”

Fasten your seat belts

One area where the ocean freight market may benefit is from a potential reduction in air freight. Xeneta says this segment faces a “bumpy ride” as lower ocean costs and better-scheduled reliability (from easing port congestion and available capacity) may tempt some shippers to make a modal shift. In a climate of increasing environmental awareness, shippers focused on sustainability may also be tempted to switch ‘general’ cargoes from the skies to the waves.

“To be fair, a shift in general volumes wouldn’t be too significant for the ocean freight carriers, but it would strongly impact on the air segment, where cargoes are obviously far smaller.”

Berglund adds that increasing ‘belly’ capacity, with easing travel restrictions, will be supplemented by the arrival of conversion and freighter orders placed during the air cargo peak. This will lead the air segment to join its ocean freight sibling in the overcapacity corner, with, he notes, “a negative impact on load factors and rates.”

Certain uncertainty

In conclusion, the Xeneta CEO underlines the complexity of challenges facing the industry, with economic uncertainty, geopolitical concern, ongoing industrial action on logistics chains, China’s continued zero-COVID policy and the combination of weak demand, easing congestion and increased freight capacity.

“I’d like to wish everyone a Happy New Year in advance, but there’s not that much for the industry to look forward to at present,” he states. “However, as we’ve seen over the past couple of years, predictions are almost impossible to make in a world that moves ever-faster, so there may be unknown factors waiting in the wings to influence markets.”

He continues: “For example, what happens if the Ukraine-Russia war comes to an end sooner rather than later? This could drive down certain costs again, giving consumers a positive boost. However, on the flip side, it’s important to always stay ‘on your toes,’ as we could experience a second economic downturn at the drop of a hat. These ‘what ifs’ can, yet again, throw a curveball for the industry, just as we saw when COVID hit. If we’ve learned anything in the past couple of years, it’s that planning for the unthinkable ‘what ifs’ must be top of mind.”

The newly established shipping line “Arctic Container Line”, based in Fonnes, Norway will start its new feeder service connecting Hamburg and Bremerhaven to the Norwegian West Coast this week. The service will be covered by the 712 TEU geared vessel “RS Mistral” and comes in addition to the Rotterdam service started already in June.

Arctic Container Line was established in March 2022 and is part of the Myklebusthaug Group, who owns 6 container vessels, as well as offshore and general cargo vessels.

Line manager Eivind Bergland states in a comment that the young company has been welcomed very well by the market, and that they have positive expectations to the new service.

“The last few months has shown us that the market has confidence in us, and that our customers believe that we can add extra value through operating our own vessels in a liner service. We are now exploring possibilities of adding even more ports to our services.” said Eivind Bergland.

The Norwegian ports covered by Arctic Container Line are Egersund, Tananger, Haugesund, Bergen, Florø, Ålesund and Orkanger.