- Global growth in container shipping is expected to slow to 3% in 2022.
- Disruption in supply chains should persist amid the war in Ukraine and lockdowns in Shanghai.
- Consequently, squeezed capacity and elevated tariffs won’t be over before 2023.
A strong rebound in container traffic pushes global ports far beyond pre-pandemic levelsContainer shipping has enjoyed a phase of strong demand, says an article published in SeekingAlpha.
Expanding container ports
With the exception of Hamburg and Hong Kong, the 15 largest container ports in the world exceeded pre-pandemic traffic levels in 2021, with flows in Chinese ports like Tianjin, Qingdao, Ningbo, and Shenzhen seeing double-digit increases compared to 2019. Container throughput in the largest US ports ended up being 20% larger amid surging demand for goods last year.
The world’s largest container ports expanded in 2021, the US is most busy
Slower container volumes in 2022 while the market remains tight
Volumes in global container shipping and container ports are expected to slow to 3% (in MT). In the first three months of 2022, US ports operated at record levels which enabled them to cut backlogs.
The largest global port, Shanghai, handled over 47mn containers. But the port has struggled amid new lockdowns in China, and a strict Covid policy remains a risk for terminal productivity in the country. In Europe, the largest ports will face sliding throughput because of the loss of Russian container volumes and diverted vessels because of delays.
Shanghai is by far the largest global port – lockdown to leave its mark
Relief in US port congestion but capacity pressure is far from over
Travel durations for containerized freight from the Far East to destinations in Europe and the US have increased. Timeliness still hovered around double the pre-pandemic level in April at over 100 days. In the most important port area and bottleneck in the US LA-Longbeach, the backlog dropped.
At the same time, Western European ports face the consequences of stranded containers destined for Russia, which again pushes up congestion. And with China being the leading export country for consumer goods, the impact of disruption in Shanghai will leave its mark in other parts of the world through at least the second quarter.
This adds to an already unbalanced system. On average, global port congestion was still close to peak levels in April, leading to delays and low arrival reliability.
Hardly any sign of improved arrival performance at the start of 2022
Spot rates ease at high levels while liners lock in higher rates for longer
Westbound spot rates from Shanghai to Europe eased from the peak seen in early 2022. Earlier imposed caps from carriers like Hapag Lloyd (OTCPK:HPGLY) (OTCPK:HLAGF) and CMA CGM, cooling world trade, as well as regular seasonal effects, could be reasons behind this. However, in April, rates were still three to six times higher than normal and liners have been shifting more to long-term contracts with shippers seeking to secure higher rates for longer. In this regard, Maersk aims to reach 70% of total volume under its term contract in 2022, up from 49% in 2019.
Container spot rate tariffs from China-Europe eased from extremes, but remain high
Lasting congestion and inefficiency lead to another strong year
Average containership earnings per day are still trading at peak levels in April and this is similar for the 6-12 month chartering of larger feeder vessels. Congestion still consumes over 10% of total fleet capacity and average port congestion has not improved either. This will mean that capacity pressure is set to remain and rates are expected to stay significantly higher than before. All in all, this will lead to another year of strong results for carriers in 2022 despite a much higher fuel bill.
Highly profitable years enable container carriers to take strategic steps
The large cash reserves will enable liners Maersk and CMA CGM to invest in their strategic development as integrated logistics services providers, by acquiring logistic services activities, investing in terminals and setting up a fleet of full freighters. The aim is to compete with players like Amazon (AMZN) or DHL as end-to-end logistics players, as well as possibly large shippers like Walmart (WMT), Ikea and Lidl which are trying to develop their own logistics activities. For logistics services providers, this creates a challenge.
Container liners exceptionally profitable in 2021
The wave of new container capacity in 2023-2024, but rates not expected to return to previous levels
In the market boom, container liners have ordered over 500 new vessels including (ultra) large ones with capacity from 15,000 to 24,000 twenty-foot equivalent units (TEUs). This amounts to over a quarter of the current fleet capacity in March. Most new container vessels will sail from 2023 and 2024 (both years +9%), creating much more capacity than can be instantly absorbed by demand growth.
However, container rates are not expected to return to previous low levels any time soon for several reasons:
- Container liners have shifted massively to longer-term contracts locking in higher tariffs in the short run
- Container liners have learned how to manage capacity by taking sailings out of the loop. Slow steaming is another instrument to manage capacity
- The sector is more consolidated – three large alliances dominate* (80% market share)
- Fuel costs are higher and liners can reduce speed to save fuel or manage capacity: (super) slow steaming (blending) alternative fuel is more costly
- Carbon emissions will ultimately be priced
- More retrofits and scrapping are coming to meet CO2 targets.
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Source: SeekingAlpha
