Market strength remains predicated on Red Sea reroutings, which significantly impact the global supply and demand balance in container shipping. The assumption of prolonged reroutings through the Cape of Good Hope for all of 2024 has shifted market expectations, with normal routings via the Red Sea and Suez Canal anticipated to resume in 2025, reports Bimco.
Supply/Demand Balance
The supply/demand dynamics in 2024 are shaped by several key factors:
- Reroutings Impact: Prolonged reroutings through the Cape of Good Hope increase demand for ships due to longer voyage distances, despite anticipated global volume growth of 5.0-6.0% and growth in head-haul and regional trades of 5.5-6.5%.
- Supply Growth: New ship deliveries are expected to hit a record high of 2.8 million TEU in 2024. Faster sailing speeds due to reroutings and increased congestion in transshipment hubs also contribute to supply growth.
- Market Balance: The supply/demand balance is projected to remain stronger throughout 2024 compared to 2023. However, the second half of 2024 is expected to see a weakening balance as volumes shift from the peak period to the second quarter.
Looking ahead to 2025, the return to normal routines could significantly weaken the supply/demand balance, potentially making it even weaker than in 2023.
Market Indicators
- Time Charter Rates: Increased by 113% in June 2024 compared to the end of 2023, reflecting the demand for ships due to longer rerouted voyages.
- Freight Rates: The Chinese Containerized Freight Index (CCFI) rose by 90% in June 2024 compared to the end of 2023.
- Asset Prices: Second-hand prices increased by 10% as of May 2024. Despite strong market conditions, sales and purchase activity have remained relatively low.
Newbuilding and Order Book
- Order Book: The container ship order book has decreased by 1.7 million TEU since mid-2023. Despite this, new building prices have increased by 12% year-to-date.
- Delivery Schedule: Most new orders are scheduled for delivery in 2027 and 2028, with shipyards’ forward cover at its highest level since 2010.
Outlook and Risks
- Rates: Freight and time charter rates are expected to weaken in the second half of 2024 and further in 2025, mirroring the anticipated supply/demand balance shift.
- Asset Prices: Second-hand prices are likely to follow the weakening trend, while new building prices will depend on contracting activity in other shipping sectors.
- Risks: Potential risks include escalated trade disputes between the EU, US, and China, as well as inflation and interest rates that could negatively impact consumer and business volumes. Conversely, a stronger-than-expected third-quarter peak in 2024 could bolster the market.
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Source: Bimco
