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.

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