For the past two years, it has been a roller coaster ride in the ocean freight business. After the early-pandemic slowdown in 2020, demand soared in 2021, resulting in massive profits for ocean carriers, reports The Maritime Executive.
Shipping boom
But we may be nearing the end of the late-pandemic boom. As consumers return to reopened bars and restaurants, spending in the developed nations is gradually shifting back to services. Government stimulus packages are on the wane, and inflation is cutting into purchasing power. All of these factors point to less demand for imported goods.
According to supply chain veteran Robert Garrison, CEO of Mercado, a transition from a bull market to a bear market would be hard on all supply chain stakeholders, who have all invested to keep up with recent increased demand.
“Instead of a bull market where we are chasing greater supply (products, containers and space) to meet growing demand; we may be entering a bear market where we will be focused on lowering costs as companies’ revenue slow. Simply, it’s not sustainable to have lower demand with increasing costs,” said Garrison in a recent post.
Gary Friedman, the CEO of the luxury home furnishing brand Restoration Hardware (RH) helped drive this point home in a quarterly market update last month. Due to lower demand coinciding with Russia’s invasion of Ukraine, RH’s stock has taken a hit, and its market value fell by $1 billion by end of March. The stock values of container shipping companies have also been affected. Since mid-March, shares in A.P. Moller-Maersk are down by about 20 percent.
Still, ocean freight will likely do well this year, even if a downturn begins to materialize. “While carriers may get stressed, they also concluded the contract negotiations rounds during which they extracted eye watering rate increases to lock in the profits for longer. If shippers will not fulfill their volumes promised under those contracts, the carriers will profit even more. This means that while the carriers may eventually see their stocks drop, they will benefit for the next 8-12 months,” noted Kris Kosmala, a supply chain and digitalization consultant.
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Source: The Maritime Executive
