Shipping lines may endure up to four years of losses due to overcapacity, weak demand, and a surge of new orders for delivery between 2024-2026, with around 2 million TEU of capacity coming online annually, according to Drewry’s Simon Heaney.
Mid-term Outlook
“The mid-term future for container shipping is pretty bleak. Carriers need to substantially upscale the demolition levels and double the idle fleet, [currently at 4%] even then they won’t get market balance, the lines are snookered”, added Heaney
According to Drewry, shipping lines are projected to shift from a $20 billion profit in 2023 to a $15 billion loss in 2024, largely due to factors such as low demand, new environmental regulations, and an excessive number of ship orders.
“I am surprised [about the level of ordering], most people had seen the direction of travel from way off -and I thought the lines had learned their lesson- but it seems no lessons have been learned,” lamented Heaney.
Pandemic’s impact
Carriers have improved their financial health due to pandemic-era profits, but the ongoing market imbalance and pandemic’s impact may affect their resilience.
Container shipping is “in a strange position,” explained Heaney, “Global laden volumes are decreasing at the same time as that world economic activity is expanding and this disconnect between the economy and container growth has never happened before.”
Drewry anticipates a repeat of the disconnect between supply and demand this year due to ongoing pandemic effects, with their Supply and Demand Index reaching its lowest point since the 2009 economic crash at 79.
BAF in Container Shipping
Drewry expect it to drop further to an all-time low of 74.3 in 2024. Freight rates are currently 16% lower than the 2016 cyclical low, but when fuel surcharges are considered, rates would be 9% higher.
“Market forces and environmental legislation are driving BAFs [bunker adjustment factors] higher, we anticipate they will reach US$230/TEU in 2024, about 55% higher than in 2016,” said Heaney.
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Source: Container News
