This post will go over some of the trends that will affect shipping and supply chains in 2023.
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Markets returning to normalcy
The most obvious and visible trend gaining ground since the third quarter of 2022 was the decline in ocean freight rates.
After constantly increasing – to record levels – since the second half of 2020, freight rates first came under pressure post the Russia-Ukraine conflict, when fears of the economic fallout started to dampen consumer sentiment and cast a shadow on international trade and freight transport.
Rates continued to hover at record levels in Q2 2022 but after that began gradually declining in Q3 2022 before commencing a precipitate descent as we moved closer to the end of the year.
This has been accompanied by lower demand in the US and European countries, which resulted in fewer sailings, thus ensuring that congestion, vessel backlogs and equipment shortages were not exacerbated further, and instead slowly started easing.
Finally, as global congestion abated, more vessels and capacity were freed up, which was then available to transport cargo, thus lessening the demand-supply disequilibrium and causing rates to moderate.
It is obvious from the trajectory over the past few months that the market has returned to some semblance of normalcy in terms of pricing and capacity availability.
The likelihood of a return to the high freight rate environment appears to be fairly low as 2023 approaches. Rates that are comparatively competitive and capacity that is readily accessible should be advantageous to shippers. In comparison to the previous two years, cargo transportation is anticipated to be smoother and faster.
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Global recession
As manufacturing activity dips and consumer sentiments turn negative, the Shipping industry will experience a slowdown in the face of falling volumes.
The general worsening in the global economic situation and macroeconomic indicators has caused the international economy to slow down, with apprehensions of an impending recession.
These recessionary pressures have already tempered global trade.
A broad-based recession will affect all activities and variables in the supply chain, ranging from production, availability of raw materials, timely transport of inventory, vessel schedule reliability, price volatility, etc.
As we move into 2023, the deflationary impact of the slowdown is spreading further (geographically) and deeper (downstream and upstream), increasing the probability of a sustained downturn.
Most analysts have already revised the 2023 growth projections for the global economy and most major countries downwards.
Even India, which expert consensus places as a solitary bright spot in the otherwise gloomy situation, has had its GDP forecasts slashed from 7.5% a few months back to around 6.5% (which was again revised upwards to 6.9%, but contingent to several downside risks).
Globally, the anticipation is that the recession’s severity will be mild but long-term.
Consequently, consumer confidence in developed countries has already taken a hit, and discretionary spending is being curbed.
The lower demand for goods and products will result in fewer factory orders and manufacturing activity in China and other manufacturing locations, resulting in a decline in EXIM volumes – thus covering the entire supply chain.
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Infusion of new capacity
The delivery of new builds ordered by Carriers will begin in Q2 2023, creating a capacity-surplus situation and pressuring freight rates.
While Carriers were circumspect about ordering new tonnage in the period immediately preceding Covid, the acute paucity of tonnage and capacity in the succeeding months meant that Carriers paid exorbitant rates to procure all available tonnage.
Carriers, therefore, utilised the super profits to place orders for new vessels, which is now expected to cause a capacity glut, starting Q2 2023 onwards.
The aggregate orders for new builds account for 30% of the existing fleet.
Since some of the older tonnages will inevitably be scrapped, and Carriers will also attempt to moderate capacity through blanking scheduled sailings and slow steaming, the net infusion of power is still expected to be higher than the forecasted demand.
Another benefit is that the new vessels will help ease congestion and alleviate space shortages.
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Source: Marine Insight
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