Outlook for shipping rates
Major Chinese seaports are seeing a drop in container throughput, underlying a continued weakening of cargo demand and freight rates. Due to slack demand on transpacific and China-Europe trades, rates are expected to continue lurching lower amid easing congestion.
The release of containership capacity previously tied up in congestion, combined with slowing volume demand, has sent the supply/demand balance back to the pre-pandemic levels. As a result, additional pressure is put on freight rates as carriers struggle to remove capacity fast enough.
Container spot freight rates have continued their downward slide following Golden Week, with the Shanghai Containerized Freight Index losing another 5.7% in the week from 10th to 14th October. Spot rate declines are driven by both a slowdown in demand and an easing of congestion that has seen more capacity return to the market. Carriers’ efforts to remove excess capacity to shore up rates have failed.
A proliferation of ocean freight rate indexes in recent years provides more confusion than clarity for shippers, indicating that the tools may be more valuable as procurement guardrails than for assessing real-time rate movements. Many shippers don’t understand what data goes into the publicly available spot rate indexes on the market, let alone how that data translates to the actual readings. In effect, the usefulness of the indexes is diluted to a broad indicator of market trends.
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Topics on shipping lines
Spot rates on the Asia-US west coast trade have dropped even faster than in a previous price war between carriers during 2015-16, indicating how fierce the competition is in the market.
By the end of 2024, Mediterranean Shipping Company (MSC) will have a total fleet capacity approximately equal to that of MSC and Maersk combined when the two carriers formed the 2M Alliance in 2015. That is likely a signal that MSC is preparing to operate as a stand-alone carrier in the major deep-sea trades, as they will have a large enough fleet to create a sufficiently broad competitive network. If MSC pulls out of the 2M Alliance, Maersk would try to get one or two other large carriers to join a new alliance. It would likely reshape all three alliances unless the other major carriers see this as a strategic opportunity to gain a competitive advantage on Maersk by sticking with their current groupings.
Container capacity supply will rise by more than 10% next year. With demand growing at less than 2%, lines will need to use all available levers to avoid a collapse in freight rates. Container lines still have an opportunity to rein in the rising threat of overcapacity. They will need to significantly increase blank sailings if they maintain rates above the levels of the year 2019.
Major ocean carriers grew their revenue at more than twice the rate of the overall transportation market in 2021 thanks to strong demand for transpacific shipping and record-high freight rates. Flush with cash, ocean carriers branch into other markets as container demand wanes.
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Hub ports struggling with challenges
Ningbo is struggling to unclog its logistics traffic as lockdown measures around one of the world’s largest ports are extended. Shippers can pick up empty containers directly from the port area, but many drivers remain stranded in the lockdown district.
The ongoing party congress in Beijing has thus far shown little hope that China’s draconian lockdowns will relax soon. But, unfortunately, without a turnaround in Beijing’s Covid stance, that will not be news to anyone in the shipping industry right now.
The Port of Rotterdam, Europe’s largest container hub, handled 10.9 million TEU through the first nine months of 2022, a decline of 4.4 percent year over year that the port attributed to the complete loss of its Russia business and persistently poor schedule reliability. Container traffic between Rotterdam and Russia, which over the past few years represented 8 percent of its volume, has reached a standstill. In addition to the loss of Russian volumes, European economies are struggling with runaway inflation and a cost-of-living crisis that has affected consumer spending.
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Topics on shipping decarbonization
The European Parliament approved groundbreaking targets to cut the greenhouse gas intensity of energy in marine fuels from 2025 under the FuelEU Maritime package. The Parliament also approved an amendment to increase the reduction target from 75% to 80% compared to 2020 by 2050. But that provoked criticism from environmental groups to want a complete phase-out to align with climate change goals.
According to the maritime consultancy Drewry, the IMO environmental regulations to be imposed on the shipping industry next year will have no significant capacity-absorbing impact on the heavily oversupplied carriers. Senior manager of container research at Drewry, Simon Heaney said, “We don’t see any significant impact next year on effective capacity from the IMO’s EEXI and CII regulations.” His assertion is at odds with carrier expectations that the IMO regulations, known as IMO 2023, will remove up to 15 percent of capacity through slow steaming and scrapping.
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FMC proposes new detention and demurrage rule
The Federal Maritime Commission has announced its latest initiative to implement the Ocean Shipping Reform Act of 2022. Under its latest proposal, carriers and terminal operators will only be able to issue detention and demurrage bills to parties with a contractual relationship. The FMC says this issue was raised repeatedly in the build-up to the proposed rule.
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