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February 27 2023

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78 Journal of Commerce | F ebruar y 27, 2023 www.joc.com Trading Places Peter Tirschwell Moving past the shock started with the disappearance of major US-based carriers as players in Washington, DC, as carriers like APL and Sealand were sold to non-US entities, and the parallel emergence of powerful shipper lobbies. If the Ocean Shipping Reform Act (OSRA) of 1998 was forged out of a consen- sus of shippers and carriers regarding confi dential contracts, the 2022 version, OSRA-22, was passed over the objections of ocean carriers and with bipartisan majorities, its terms unequivocally favoring shippers. An activist US Federal Maritime Commission is channeling the pri- orities of OSRA-22 and US interests more generally, including shippers and truckers in ways it never did before. Where does this lead? Already there is talk in Washington that legislators may not be done rewriting shipping legislation in ways that could go well beyond the provisions of OSRA-22. If that wasn't enough, even as the industry was emerging from COVID-19, a thunderclap occurred on Jan. 25, when MSC and Maersk announced plans to discontinue the 2M Alliance when it expires at the beginning of 2025. Gradual industry concentration over many years for the fi rst time reached a point where the biggest two carriers had achieved scale large enough to operate on their own, without long-term con- straints of alliance partnerships. With signifi cant market power and the freedom to deploy it, MSC and Maersk changed the industry landscape overnight and raised the specter of yet further consolidation that may need to occur in reaction. Smaller carriers are disadvantaged by the constraints imposed upon them by alliances, and if intense pricing pressure continues, will be further pressured to reduce costs, possibly even to the point of engaging in further consolidation as the ultimate step in cost reduction. JOC email: peter.tirschwell@spglobal.com twitter: @petertirschwell Supply chains for the entire period of globalization from the mid-1990s thorough the COVID-19 pandemic were defi ned by opportu- nity and e" ciency; reliability was for the most part taken for granted and risk was abstract and removed, more the domain of scenario plan- ners versus built into active strategy. Disruptive events, when they hap- pened, were seen as individualized and not part of a larger pattern. That has now changed. Unpre- dictability is assumed, even if the reasons triggering it are not yet unknown. Even if on the surface the industry looks normal, new behav- iors will result from a heightened perception of risk. An early indica- tion of this was the much-greater- than-expected diversions from the West Coast over the past six to nine months to avoid longshore labor disruption during contract negoti- ations. Several sources attributed that to an elevated prioritization of risk avoidance given the harsh experience of previous bouts of US West Coast port disruption that had occurred during prior negotiations. And on top of known risk factors are new ones like geopolitics, which pose fundamental questions to cor- porate and supply chain leaders that often boil down to this: Given that resourcing to alternative locations is costly, time consuming, and risky in its own right, is it worth it to aban- don known suppliers and logistics infrastructure that have adequately and profi tably supported many com- panies' supply chains for years if not for decades? But a new perspective on risk isn't the only way that the environment around containerized supply chains will fundamentally change going for- ward. Coming out of COVID-19, the legislative and political picture around shipping has changed in ways that could have further signifi cant impact on the industry in the future. In the United States, the pan- demic catalyzed a trend slowly tak- ing shape in the background, which AT A MOMENT when it's tempting to focus on the recent past in an attempt to comprehend the disori- enting experience of most tumul- tuous period ever seen in ocean container supply chains, the market is changing so rapidly that no matter how di" cult the past few years have been on so many shippers and trans- portation providers, the future is once again taking center stage. A focus on what's ahead versus what happened, and all the chal- lenges, is driven by necessity. The market, yet again, is shifting on multiple levels. It is quickly moving on from the pandemic period and everything that transpired, and moving into a phase that is at once familiar but also entirely new and unpredictable. Developments in recent months point to multiple signs, in fact, that the industry has left the pandemic period behind and is entering another era. These new times are defi ned by unfamiliar factors such as a radically altered geopolitical environment, the national political landscape surrounding shipping, and a soon- to-be-altered industry structure due to the impending breakup of the 2M Alliance, factors that could converge in unpredictable ways. Even as rates plummet back to earth and port congestion and delays are fading from view, setting up a more traditional year of contract negotiations and pricing, the new era is one that will be defi ned in ways it wasn't in the past, starting with an increased acknowledgement and avoidance of risk. The market quickly moving on from the pandemic period and into a phase that is at once familiar but also entirely new and unpredictable.

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