Multiple indices continue to report steep declines in the consolidated shipping market. Maritime consultants Drewry lowered its demand outlook for 2022 to 1.5%, and to 1.9% for 2023 following heavily downgraded GDP predictions. The consultancy suggested carriers would take defensive action such as demolishing older, high fuel consumption vessels and deferring orders of newbuilds to maintain rates at acceptable levels. However, Drewy thinks the measures will be insufficient to bridge the supply-demand gap next year. The estimated net increase in effective capacity at 11.3% is significantly above the projected demand growth of 1.9%. Drewry forecasts that missing sailings should be enough to keep freight rates and profits above 2019 levels for carriers.
Parash Jain, HSBC’s global head of shipping and ports research, noted liner shipping now has a stronger bargaining position following consolidation. The largest ocean carriers control more than 85% of capacity. “Going forward, we argue that after years of consolidation and the formation of mega shipping alliances, the shipping lines have learnt the capacity discipline and while there might still be volatility in freight rates, the rock-bottom level of freight rates seen in the past decade might no longer persist in the future.”
Shipping analysts at Jefferies point out that ocean carriers’ ability to move in a far bigger fashion gives them the chance to make quick supply responses. This was evident in 2020 when liners idled as much as 13% of vessel capacity, which supported freight rates and allowed for profitable earnings despite the significant slowdown in market activity during the first few months of the pandemic.
More recently, container performance has dropped significantly in part due to macroeconomic headwinds and climbing inflation levels. Container trade is down by -1.6% year-on-year (y/y) from January to August. Since July, container port congestion has reduced from close to 38% of capacity at port to around 34% according to Clarksons. Current freight rates are twice as high as the 2019 average, while the Shanghai Containerized Freight Index (SCFI) is 100% above the 2010 to 2019 average.
Container Trade Statistics’ (CTS) global demand data for August 2022, has turned out to be the weakest month since early 2020. Global demand measured in TEU declined by -4.2% y/y whereas demand measured in TEU*miles declined by -5.5%. Compared to pre-pandemic August 2019, global demand in TEU has grown 1.3% whereas demand in TEU*miles has now declined -2% compared to August 2019. Commenting on the CTS figures, Lars Jensen, CEO of Vespucci Maritime, analyzed that from a fundamental global supply/demand perspective, there is no longer a fleet capacity shortage, and the balance is poised to worsen further.
“Global demand is clearly weakening and weakening quite rapidly. We should expect continuing declines in spot rates – and associated spill-over into the contract markets. And we should also expect a ramp-up in not only blank sailings, but also the complete closure of a range of services, on especially the Trans-Pacific trade,” Sea-Intelligence warned in its latest weekly report.
Source: splash247.com
Container shipping lines are focusing on capacity management as rates plunge and shippers continue to reduce volume. Although the industry had expected market normalization at this time of the year, the changes have come about so suddenly it has forced container carriers to accelerate cuts in capacity by blanking sailing to slow the downward pressures on rates.
An analysis of capacity on major trade routes shows an average of -26% to -31% reduction on the Trans-Pacific corridor over Weeks 41-43. The average capacity reduction on the Asia-Europe corridor was between -19% to -27%. This is reflected in the reduced number of vessels arriving at the major ports in the U.S. and Europe. The Marine Exchange of Southern California reports a lower than "normal" level of vessels scheduled to arrive, based on 2018/19 pre-COVID levels. However, at Savannah on the U.S. East Coast, the backlog of containerships remains and in Northern Europe, congestion continues as a lingering effect in part from the strikes at German ports during June and July and the recent actions at Felixstowe and now Liverpool in the UK.
Murphy observed the current levels of capacity reductions have only brought underlying capacity in line with 2019 levels. Asia-North America West Coast is scheduled to see capacity grow by 1.9% when annualized over 2019, while Asia-North America East Coast and Asia-North Europe will see even larger capacity increases of 3.1% and 5.1%, respectively. Only Asia-Mediterranean is contracting, by -1.3%.
“A more pertinent question then becomes whether carriers can really blank more capacity to try and control the freight rate drop,” Murphy said. Carriers have already returned to the range of 10 to 30% capacity reductions and a 50% reduction in deployed capacity will not only create significantly more supply chain problems but will also likely have the cargo owners “up in arms.” Sea-Intelligence concludes that there is a very delicate balancing act for the carriers to follow going forward. The efforts to balance capacity will also become increasingly critical for the carriers as the markets are expected to see the introduction of the first of the newbuilds in 2023.
Source: Maritime Executive, Sea-Intelligence
A strike by South African freight-rail and port workers at state-owned operator, Transnet is causing significant challenges to ports and slowing the flow of goods in and out of the country. The strike comes on top of South Africa’s energy crisis that has caused blackouts of up to nine hours a day.
The United National Transport Union (UNTU) started to strike on October 6, while the South African Transport and Allied Workers Union (SATAWU) members walked out on October 10. Together, the unions represent around 80% of Transnet workers. The unions have confirmed their members would be on strike for an indefinite period, which could affect all the country’s ports.
Exporters have warned of devasting economic effects if operations at the state-owned ports in Durban and Cape Town are at a standstill for an extended period of time. Ocean carriers have advised customers they are looking at alternative solutions and some have dropped calls at Durban and Cape Town.
Some shippers are seeking alternative modes such as shipping by air. However, limited air capacity will trigger price rises, an executive of an air charter service pointed out. Many airlines have not resumed service to South Africa while several carriers are offering lower frequencies than pre-COVID.
The South African Association of Freight Forwarders has warned that even before knock-on effects are considered, South Africa is conservatively losing between R100m and R1bn daily. A previous 17-day strike at Transnet took approximately seven months to recover from.
Source: The Loadstar, splash247.com
Labor disputes across markets are piling on disruptions to still congested ports, even as freight rates are lowering and supply chain bottlenecks improving. Strikes in key ports in Germany and the UK have resulted in delays for container traffic while new and ongoing strikes could create disruptions through the rest of this year, said consultancy Drewry.
Strikes at Northern German ports in June and July resulted in four-day wait times for ships in the Port ofHamburg. The UK’s largest container port of Felixstowe had two eight-day walkouts in late August and September/October while the Port of Liverpool is facing a second strike by dockworkers which started October 11 and will run for seven days. “Strike action at Liverpool is further adding to shipper woes. As a result, disruption is expected to continue through Q4 22,” reads the Drewry update.
Strikes at Northern German ports in June and July resulted in four-day wait times for ships in the Port ofHamburg. The UK’s largest container port of Felixstowe had two eight-day walkouts in late August and September/October while the Port of Liverpool is facing a second strike by dockworkers which started October 11 and will run for seven days. “Strike action at Liverpool is further adding to shipper woes. As a result, disruption is expected to continue through Q4 22,” reads the Drewry update.
Disruption on the U.S. West Coast remains as risk as negotiations continue between the International Longshore and Warehouse Union (ILWU) and employer body, the Pacific Maritime Association (PMA).
Major ports could also be affected by problems in other parts of supply chains. In Germany, where strikes have ended, there are still issues with attracting labor to cover the needs of the transportation sector. In the U.S., which, is short of truck drivers, the recent rejection of new contracts between rail workers in labor union the Brotherhood of Maintenance of Way Employees have failed, reviving strike fears.
Overall, both ports and supply chains are facing uncertain times, even though the immediate consequences of COVID are easing. “Drewry’s view is that rising inflation increases the likelihood of strike action in other markets as dock labor push for higher wages to address the increasing cost of living,” the consultant said.
Source: ShippingWatch
