During the epidemic, the container shipping industry had an unheard-before boom, but the upcoming year will bring a challenging mix of weak demand and rapidly expanding fleet growth, as reported by Seatrade Maritime.
With Maritime Strategies International (MSI) analyst Daniel Richards, we are examining the container market in the second instalment of our series on the 2023 shipping market prognosis. He tells the Seatrade Maritime Podcast that the predicted trade growth, the rate and size of fleet growth, and challenges with congestion and capacity are all critical factors for the sector going into 2023.
Trade growth outlook
Regarding trade growth, Richards asserts that there has been pressure on consumers’ disposable incomes, property markets under pressure from rising interest rates, and overbuilding of inventory. The outlook for trade growth is therefore expected to remain difficult, at least during the first half of 2023.
Fleet growth forecast
“What is the immovable large item coming down the line for the container market balance is that supply growth is likely to accelerate considerably,” he says in reference to the increase in tonnage supply. In 2023 and 2024, MSI predicted a 7% fleet growth year-over-year, and that growth in 2025 would be above average. However, fleet growth can reach 10% annually if a large anticipated amount of scrapping does not occur.
Congestion and capacity
However, this is now altering. The pandemic has been characterised by major supply disruption and container shipping bottlenecks. According to Richards, there has been a “quite significant loss of effective capacity throughout the period coinciding with the pandemic, and that’s now also beginning to unwind.”
Container freight rates
Spot container freight prices experienced a dramatic decline in the second half of 2022 and are currently substantially lower than the contract rates reached between shippers and lines earlier in the year. Data from Xeneta, according to Richards, clearly indicated that contract rates were beginning to decline.
“A large percentage of contracts will be up for renewal in the first part of the following year, and it is obvious that the lines are not in good shape heading into that renewal season. Blank sailings aren’t working as well now as they did when the pandemic first started, if at all. The contract rates are therefore expected to follow now that the spot rates have taken the lead.”
Depending on the line, the trade focus, and the ratio of a spot to contract activity, there will be a range of contract rate declines. MSI does not anticipate contract rates to decrease all the way to pre-pandemic weak market levels.
Impact on container line earnings
When will the decline in freight prices begins to affect lines’ earnings, which were at record levels in Q3 2022, is the big issue. “The first thing you’ll notice is that the next several quarters will be experienced somewhat differently by various lines. Therefore, lines with a strong focus on Transpacific Asia to US commerce are more likely to experience pressure than larger or lines with a more broad cargo base across multiple areas, according to Richards. Similarly to this, lines with more contract cargo than spot cargo will have longer-lasting profits.
In order for the industry as a whole and that profits picture to start to seem more typical, he says, you should be looking more toward the middle of next year. This won’t be as thin as the margins that were present in some years prior to pandemics, though.
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Source: Seatrade Maritime