Another year has arrived, and it’s time to look at what 2020 may have in store for the ocean freight industry. Here are the biggest trends to watch, according to experts, as well as some major factors that will impact the industry in the year ahead.
Shift toward sustainability due to IMO 2020
To start off on a positive note, the freight industry is expected to further its progress toward sustainable and environmentally-friendly shipping practices in 2020. The International Maritime Organization (IMO) recently introduced a low-sulphur fuel regulation for 2020, which is aimed toward reducing the shipping industry’s contribution to climate change as well as the rate of childhood asthma and premature death caused by high-sulphur percentages. Additionally, the IMO is requiring shipowners to install new equipment by 2024 that cleans the dirty ballast water discharged by ships. As the organization set a goal of cutting the shipping industry’s carbon emissions in half by 2050, there should be increasingly environmentally-friendly changes for the industry in the next 12 months.
The trade war between the U.S. and China rages on
Throughout 2019, every news outlet covering the shipping industry was discussing the trade war between the U.S. and China. Well, 2020 will be no different, as the ongoing instability and uncertainty surrounding the dispute will continue to impact the logistic industry. Importers will continue to search for alternative Asian countries, or countries in other parts of their world, to source their products, which is expected to result in infrastructure improvements in the countries where business has spiked. Southeast Asian countries in particular, such as Vietnam, have seen tremendous increases in volume over the past year and will need to ensure their infrastructure can meet the demand.
However, while the conflict between the U.S. and China may have some benefits for Southeast Asia, the ongoing trade war is expected to negatively impact trade on a global scale. Global trade is expected to enter a moderate recession phase, with the U.S. and China experiencing a slowdown in growth. However, the upcoming presidential election in the U.S. should result in decreased political tension in 2020.
Rising shipping costs and volatility as a result of IMO’s requirements
The IMO 2020 low-sulphur regulation should result in increased costs for the shipping industry in the coming year; the new regulation is expected to add as much as $60 billion per year to fuel costs. The regulation requiring new equipment by 2024 is also expected to cost shippers around $50 billion. As such, carriers are expected to increase their focus on profits by controlling capacity to keep rates high. As IMO 2020 goes into effect in the very beginning of 2020, carriers are expected to start updating their rates on a monthly, rather than quarterly, basis, while using very different formulas to determine their rates. This will likely cause high market volatility for the first few months of the year.