After posting another record year of profits, worldwide recessionary and inflationary pressures are now chipping away at ocean carrier fortunes. As far as rates are concerned, our analysts suggest that shippers and freight forwarders will be able to do a little window shopping this year, reports Logistics Management.
Global recession hits container market
Global ocean carriers reached the top of the bullish market in 2022 by realizing high profits largely due to tight capacity and exceptionally high container rates. In fact, analysts at Blue Alpha Capital project that the world’s biggest container lines are on course to post profits in 2022 that will top 2021’s record by 73%.
However, worldwide recessionary and inflationary pressures are now chipping away at these fortunes. “Recession now appears likely in Europe and North America—economies that account for half of global output,” says Rahul Kapoor, vice president at S&P Global Market Intelligence.
So, what factors will most affect ocean shipping as it enters these stormy seas? Spencer Shute, principal consultant at Proxima, identifies three trends: overall reduction in consumer demand; new ships adding additional capacity; and souring origin changes (off-shore vs near-shore or re-shore).
“All three factors are leading to reduced ocean rates, which are likely near bottom in most cases, and an increased need to partner with customers [shippers filling containers] to ensure equipment is appropriately positioned around the globe,” says Shute.
According to Freightos data, freight rates fell 21% to $2,607/forty-foot equivalent unit (FEU) in November, its lowest level since December 2020 due to slowing demand and decreased port congestion levels. Freightos notes, however, that while this rate is 72% lower than a year earlier, it’s still double its 2019 level.
While the continuing Russia war on Ukraine, skyrocketing fuel prices, and a dramatic slowdown in consumer spending are contributing factors, perhaps the biggest impact comes from China’s recent surge in COVID cases and its strict “zero-COVID” strategy.
By the latter half of 2022, ocean rates began to plummet and continued to crash. HSBC Global Research reported that the cost of sending a container from Asia to the United States collapsed by nearly 90% in 2022.
“Suddenly, we saw a very heavy decrease in cargo demand,” says Stefan Verberckmoes, an analyst at Alphaliner. “Today, Chinese export freight rates are almost at the same level as pre-pandemic.”
Joe Monaghan, CEO and founder of Worldwide Logistics Group, expects trans-Pacific eastbound ocean rates to be fully restored to pre-pandemic levels within the second quarter of 2023. “They, ultimately, could reach 10-year lows by summer,” he adds.
To protect rate levels in 2023, Monaghan notes that carriers will need to be cautious with the capacity they put into trade lanes. “We may continue to see blank sailing schedules rather strong again,” he says. “With new vessels entering the market this year, this includes continuing to monitor capacity in specific trades to accommodate for the potential downfall in demand in 2023 and the further softening of rates going into the 2023-2024 contract season.”
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Source: Logistics Management