- Ocean carriers may be obliged to downgrade their outlook for the year.
- The speed of the demand slump has blindsided carriers confident of the integrity of contracted volumes.
- However, their ability to adjust capacity will be determined by the remaining duration of the charter party on each vessel.
Due to the sharp reduction in main haul voyage results and the increased number of ships being taken out of service as a result of the drop in demand, ocean carriers may be forced to lower their annual outlook as reported by The Loadstar.
Demand slump
The speed of the demand slump has blindsided carriers confident of the integrity of contracted volumes, but booking forecasts are down sharply as consumers prioritise higher housing and energy costs, leaving retail inventories overstocked.
And according to Lars Jensen, CEO of Vespucci Maritime, the rapid unwinding of port congestion is resulting in “a continued release of capacity”, which “combined with weak demand is fuelling the market downturn”.
The analyst added: “From a fundamental global supply:demand perspective, there is no longer a fleet capacity shortage, and the balance is poised to worsen further.
“This means there is no fundamental support to revert back to the high rates of the last two years, but also that there is no structural support to halt the current rate decline.”
At the same time, carriers’ bottom lines are under attack from soaring operating costs: for example, Hapag-Lloyd’s transport expenses per teu have jumped 23% in the first six months, compared with H1 21; discounting the bunker element, its unit costs increased 16%, or $147 per teu, as the carrier was hit by inflationary pressures across its networks; and its costs for handling and haulage rose 13% year on year; while expenses for storage and hinterland transport spiked by 15%.
Seeking to renegotiate
And the German shipping line is not as exposed as many of its carrier peers to the containership charter market, with just a third of its fleet chartered in.
Nevertheless, it still recorded a hike of 12% in its vessel and voyage expenses during the period.
Some carriers have a high percentage of chartered vessels, which, they argue, allows them more flexibility to adjust their capacity to meet demand.
However, their ability to adjust capacity will be determined by the remaining duration of the charter party on each vessel.
Unlike freight contracts, which large BCOs will seek to renegotiate with carriers, there is seldom a willingness by a shipowner to discuss reducing daily hire rates agreed upon in a charter party and if the charterer either delays or arbitrarily reduces charter hire payments, the vessel will face arrest and the charterers’ business put at risk.
Reducing service speeds
Additionally, 2.6 million teu of brand-new capacity is planned for delivery the following year, increasing the worldwide container fleet by a total of 11%.
Carriers assert that the IMO’s new carbon indices for shipping, which go into effect in January, may partially invalidate its arrival. Ships with low CII ratings will be required to reduce their service speeds in order to comply.
The CII will, however, have a “limited” impact, according to Alphaliner, “because service speeds have already significantly decreased over the past decade.”
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Source: The Loadstar
