The container trading market is facing challenges in early 2025 due to elevated secondhand container prices. These high prices, driven by geopolitical uncertainties and trade disruptions, are expected to impact the profitability of container traders in the short term, reports AJOT.
Economic Pressure
Christian Roeloffs, CEO of Container xChange, highlighted the challenges facing container owners in the current market. Persistent inflation and higher interest rates are increasing total asset costs, pushing breakeven leasing rates upwards and increasing costs for container users. This necessitates sharper strategies to maintain profitability amidst the risk of overcapacity, particularly with strong supply growth in recent years.
The US container market is currently witnessing speculation about a potential influx of used containers from China. However, the implementation of potential tariffs, which may be less impactful on used containers compared to new ones, could influence the strategic decisions of manufacturers and wholesalers.
Despite the potential for increased supply, there is a risk of overcapacity, especially if routes like the Red Sea are re-opened. This could lead to a significant drop in freight rates. Container owners will need to adopt agile leasing strategies and explore niche markets to maintain profitability.
Container users will also need to carefully evaluate the cost-effectiveness of different operational models, such as shipping own containers (SOC) versus using containers owned by others (COC), to remain competitive in the evolving market.
Impact On Container Trade
As the Lunar New Year approaches, container activity across the Asia-Pacific region is slowing down. Freight forwarders are prioritizing the clearance of existing cargoes before the holiday period, which typically disrupts trucking and port operations.
Container trading in China is also slowing down. Manufacturers have reportedly stopped taking new orders, reflecting a cautious approach to production planning during the holiday season. While COC (Container on Carrier) prices are softening, SOC (Shipping Own Container) prices are showing a slight increase due to reduced container stock from suppliers. This divergence in prices could potentially impact demand and pricing dynamics in the coming weeks.
Mixed Signals
The U.S. manufacturing sector showed mixed signals in November 2024, according to the U.S. Census Bureau.
- New orders declined: New orders dipped slightly by 0.4%, indicating weakening demand.
- Shipments increased modestly: Shipments rose by 0.1%, breaking a three-month decline.
- Unfilled orders continued to grow: Unfilled orders increased by 0.3%, pushing the unfilled orders-to-shipments ratio to 7.07, suggesting robust backlogs and longer lead times.
- Inventories increased: Inventories rose by 0.3%, following two consecutive months of decline. The inventories-to-shipments ratio also increased slightly.
Tariff Risk
The upcoming USMX and ILA contract negotiations are driving a surge in container orders and pushing up freight rates. Carriers are implementing General Rate Increases (GRIs) in anticipation of these negotiations.
This pre-emptive action has led to a significant increase in orders since November, sustaining elevated container and freight rates. This trend is expected to continue through January, influenced by both the upcoming contract negotiations and the upcoming Lunar New Year, a period traditionally characterized by increased shipping activity.
Despite this upward trend, Christian Roeloffs, CEO of Container xChange, cautions that volatility will likely persist in the first quarter of 2025. While container prices remain strong, the potential for overcapacity remains a concern, especially with the recent increase in supply growth.
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Source: AJOT
