International trade has become an integral part of the global economy and the shipping industry plays a crucial role in facilitating this exchange of goods.
The past few years have been challenging for the shipping industry due to the Covid-19 pandemic and the resulting disruptions in supply chains. As we look ahead to 2023, there are many factors that could impact global trade and shipping - such as the ongoing pandemic, geopolitical tensions and changing consumer preferences.
In this article, we will examine the current state of the shipping industry and provide a global as well as a local trade forecast for 2023.
Current market conditions in the shipping industry have seen containerised freight rates experience significant correction after reaching a post-COVID peak in late 2021.
Drewry, a leading provider of research and consulting services to the maritime and shipping industry, in its latest WCI composite index, reports that rates have decreased by 79%. From its peak at $10,377 in September 2021 to $2,123.
Although the current rates are 21% lower than the 10-year average of $2,694, they remain 50% higher than the average pre-pandemic rates in 2019 at $1,420.
Recent figures have shown that the composite index has increased by 0.7% to $2,135.16 per 40ft container, but rates remain 77% lower than the same period in 2021.
Drewry expects that rates will continue to experience small week-on-week (WoW) reductions in the coming weeks. Despite the fluctuations, a return to normal prices is expected.
Global ocean market conditions have seen the orderbook to fleet ratio hit a historic low point in mid-2020, reaching only 8.6%.
This ratio indicates that in 2021 and 2022, the injection of new vessel capacity into global markets has been lower than in any period in the last 20 years. To balance off the reduced scrapping rates and squeezed idle vessel metrics, new vessel capacity has been limited.
As the spot markets continue to plummet, vessel ordering has slowed significantly again, returning to a crawl.
With hyper-inflated rates behind us, a reduction in vessel ordering is expected as the market returns to a more balanced state.
As of mid-December 2022, the global inactive fleet increased by TEU capacity rising to 5.5% of the total container fleet due to an increase in idle carrier units and vessel capacity under repair.
This marks a significant increase from the 5.3% reported in early December and a substantial jump from the 2.3% reported a year earlier.
Inactive fleet can be attributed to weakening cargo demand and declining freight rates, prompting carriers to cut some sailings and temporarily suspend services on major East-West trade lanes.
As demand weakens and freight rates normalize, carriers are expected to take the opportunity to remove as much capacity as practical in an effort to maintain upward pressure on freight rates.
In the third quarter of 2022, carrier profitability has declined, which is not surprising given the current market conditions.
It is predicted that this decline will continue to accelerate throughout 2023. Carriers that prioritize spot markets are hurting financially as a result of declining freight rates, inactive fleets, and weak demand.
Conversely, carriers that support long-term contract business from BCO’s (Beneficial Cargo Owners) and large forwarders are better insulated against market volatility and are therefore better equipped to maintain their profitability.
Ports of Auckland continue to be faced with challenges, with congestion still causing delays and vessel berthing windows are not available until March 2023.
Overseas port delays are also having a significant impact on the arrival schedules, further aggravating the existing congestion. In addition, Ports of Auckland’s automation project has been scrapped after years of delays and issues.
Shipping lines are still imposing a Congestion surcharge for both import and export containers through Ports of Auckland, adding to the cost burden. The transit time for containers from Port of Taraunga to Metroport by rail is currently averaging five days.
As a result of the congestion at Ports of Auckland, vessels are being redirected to Northport, which is not equipped to handle large container volumes, posing further challenges to the supply chain.
As we move into 2023, the global trade forecast for international shipping is marked by a shift away from the extreme conditions of 2021 and 2022.
While many of the market conditions are beginning to stabilize, some challenges remain - port congestion, schedule disruptions and container equipment imbalances.
The continued decline in carrier profitability and the impact of macroeconomic factors such as oil price volatility and geopolitical tensions also suggest that the industry will continue to face headwinds.
Nonetheless, the moderation of freight rates on most trades and the anticipated reductions in global vessel capacity should offer some relief for both shippers and carriers alike.