The slide in spot rates in container shipping has become entrenched, according to analyst Drewry, with the dips getting bigger by the week. It added that it could be the beginning of the end of the container market bull run.
Shipments along most trade routes are also down on the same point a year ago with high inflation eroding confidence that volumes will stage much of a comeback.
“Carriers have proved that they can still make astonishing profits even when moving fewer boxes, posting record EBIT numbers in in the first quarter of the year despite lower volumes, but the gloss is starting to fade and investors are getting jittery with liner share prices down by around 22 percent since the start of the year,” said Drewry.
“We always knew that extreme freight rates were unsustainable, the only questions were; when the market would turn and then, how quickly?
“In the latest Container Forecaster, Drewry sets out its view; the container market has definitely turned, but the winding down of high rates and carrier profits will take some time.”
Carriers will still benefit from supply chain congestion. “Take that away and we would expect to see a very swift normalisation of the market,” added the analyst. However, there is no sign yet that the port bottlenecks are going away.
AIS ship tracking data reveals that the number of containerships waiting outside of major ports is growing, while the views of Drewry’s customers from surveys has changed very little compared to the previous report: there is no expectation of a fix this side of 2023.
When asked when port congestion issues would clear in North America the majority of respondents (48 percent) said in the first half of 2023. Another 40 percent were even more pessimistic, stating it would take until the second half of next year. No improvement in US logistics infrastructure was cited as one reason why this region is expected to be the last to emerge from the operational chokehold.
Expectations for European congestion were closer aligned to Asia than North America, but once more some 73 percent of respondents opted for no fix before 2023.
With no changes to our expected supply chain recovery timeline the market will continue to be denied capacity that it otherwise would have had access to. Drewry estimates that effective container ship capacity will be about 15 percent below potential this year, following on from a 17 percent reduction last year.
“Things that might extend the supply chain recovery include China’s refusal to budge from its zero-covid policy that, as we have seen, can create disruption at any time, and the port labour contract negotiations going on for the USWC, the main gateway for US container imports.
“Life in a high-inflation world increases the risk of labour shortages arising from industrial action as new wage demands pile up. Already, the logistics sector has endured strike action (or threats) at German ports, railways in the UK, and by [South] Korean truckers,” Drewry explained.
“While congestion issues remain challenging across the world, they are clearly not having quite the same influence on pricing as they did previously, as evidenced by falling spot rates over the past few months. The situation is still bad enough to prevent a precipitous collapse in short-term rates, but it seems that sentiment for the global economy and container demand is reasserting itself as a pricing driver.”
As things stand, Drewry still expects the market to grow but that could change considering the speed at which economists are downgrading GDP projections. A harsher than expected slowdown in volumes, or a contraction, would both hasten the spot rate decline and reduce the time it would take to clear port bottlenecks.
Looking further ahead, Drewry foresees a significant loosening of the container market from the second half of 2023 when the supply chain congestion is expected to have cleared. It will also coincide with a significant influx of newbuild containerships.
Of course, the fortunes of the container sector has knock-on effects on the multipurpose and heavy lift segment. With that competing segment focusing on its core services, a range of cargoes have found their way back into the holds of the MPVs. How quickly and to what extent rates fall in the container segment will likely be reflected in spot market rates for the multipurpose industry.