Drewry: Lingering congestion to prevent “very swift normalization”
Although container shipping’s pandemic fueled boom cycle has undoubtedly taken a turn in recent months, lingering congestion is likely to prevent “a very swift normalization”, said Drewry in its latest Container Forecast report.
With falling demand driving container spot freight rates lower on a weekly basis over the last four months and high inflation eroding confidence that volumes will stage much of a comeback, “it certainly feels like we are at the beginning of the end of the container market bull run,” a publication by gCaptain detailed.
Despite the fact that carriers have shown resilience to uphold profits despite lower volumes, as evident from Q1 results, the winding down of high rates and carrier profits will take some time, with no significant loosening likely until the second half of 2023.
Drewry’s World Container Index shows rates declined 3% this week to $7,066 per 40-foot container—16% lower than a year ago and down significantly from the September 2021’s $10,377 peak, even though still about double the five-year average.
Port congestion, which has been a main driver of skyrocketing rates, remains to be an issue and AIS ship tracking data actually reveals that the number of containerships waiting outside of major ports is growing. There is little expectation of a fix any time soon, reports Drewry.
In addition, China’s zero-tolerance COVID-19 policy, U.S. West Coast port labor negotiations, and high risk of inflation-induced labor shortages are adding to uncertainty in the market.
Drewry noted that lingering congestion issues are “clearly not having quite the same influence on pricing” as they did earlier in the pandemic.
“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,” the maritime consultancy added.
The container shipping market is still expected to grow 2.3% in 2022, but the projection is “certainly not a given, especially with the speed at which economists are downgrading GDP projections,” as 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.”
Further in the future, Drewry foresees “a significant loosening of the container market from 2H23, when the supply chain congestion is expected to have cleared. It will also coincide with a significant influx of newbuild containerships. ”
In conclusion, the end of the container boom cycle will require a paradigm shift from all stakeholders. “Ocean carriers need to address the looming environmental and over-capacity risks by scrapping older, less green ships, while shippers might be wise to wait for the market to come back to them before committing to lengthy contracts,” explained Drewry.