Having been on a speaking trip in China to discuss the China Belt Road Initiative (BRI), it still amazes me that there are senior maritime executives that argue shipping will return to ‘normal’ and is currently going through ;just another shipping cycle’. What they fail to understand is that the BRI is rewriting what the new normal in Asia will look like.

Whilst there is a general over capacity, exacerbated by more teu carrying capacity to come on line in 2018, the shape of the recovery is up for debate. There is a backlog of 2.9m teu to come on stream over the next two years. We have already seen massive liner consolidation, but the challenge will be what mix of vessels should be in the market and specifically what size. Answers to these questions, will to an extent, be influenced by the BRI.

A cornerstone of the BRI is to pair ports and rail networks so as to give an optimal mix of transport mode to end customers. As end customers become more demanding in terms of delivery performance focus has shifted to integrating simple end-to-end solutions to continuous supply chain needs of lower inventory levels, regular delivery and shorter product planning cycles. It is expected that by 2020, the BRI network will have 8.1m active tracking devices for cargo – making the industry a lot more transparent. The pairing of ports with rail, coupled with this new transparency, is creating new hub and spoke logistics networks and patterns. For example the Yangtze River / Shanghai Port pairing has one of eight horizontal rail lines connecting Shanghai with Chongqing and Wuhan and 11 river ports. There is an accelerated formation of regional rail hubs and networks with a focus on international freight. In particular, Shanghai is moving from a current base of 1.5 % of international trade volume by rail to 20% – 30% by rail. This will reduce the dominance of shipping as a mode of freight transport.

In recent times there has also been the articulation of the blue economic passages (BEP) that align ports / rail and road.  There are 3 BEPs (maritime trade routes):

Other patterns emerging that will have an impact, include:

It is already notable that China is actively supporting this new paradigm. There is a complex system of subsidies for rail use, depending on what development focus is being taken. The subsidies are dependent on what commodities and individual provinces agenda is. In some cases electronics get no subsidy whilst fresh food and products attract a subsidy. The provinces control the subsidies depending on the city / province / Beijing development plan.

What does this mean for shipping? Whilst it is clear that shipping will still be an important component, it will not be as dominant as a new Eurasian trade block emerges. With all this activity around the new transport infrastructure brought about by the BRI, the new cargo / freight forwarding instruments will be based on optimising freight modes. When considering this optimal mix of rail / sea / road modes, it is suggested that the need for 20,000+ teu vessels is limited, and that modern fleets will be focussed on 10,000 to 14,000 teu vessels.

The time of carriers relying on constant capital injection to survive would be over in the near future. Who control the route, who have the platform, who will be the final winner. So the Big ship would be the mega taxi belong to ship owner only.

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