In the second part of our 2023 shipping market outlook series we are focusing on the container sector with Maritime Strategies International (MSI) analyst Daniel Richards. He tells the Seatrade Maritime Podcast that there are three different elements that are important looking forward into 2023 for the sector: expected trade growth, pace and size of fleet growth, and issues around congestion and capacity.
You can listen to the full interview as a podcast in the player above
Trade growth outlook
On trade growth Richards says there has been an overbuilding of inventories, pressure on housing markets due to interest rates, and also pressure on consumers disposable incomes. “So, the trade growth outlook, at least for the first half of 2023 is going to be pretty challenging.”
Fleet growth forecast
Speaking about the growth in the supply of tonnage he says: “What is the immovable big object coming down the line for the container market balance is that supply growth is going to accelerate markedly.” MSI forecast 7% fleet growth year-on-year in both 2023 and 2024, and above average growth in 2025. Fleet growth though be as high 10% a year if a high expected volume of scrapping does not take place.
Congestion and capacity
The pandemic has been marked by severe supply disruption and congestion in container shipping, but this is now changing. “You've seen a pretty sizable loss of effective capacity over the period coincided with the pandemic, and that's now also beginning to unwind,” Richards says.
Container freight rates
The latter half of 2022 saw an extremely sharp drop in spot container freight rates, which are now much lower than contract rates agreed between shippers and lines earlier in the year. Richards noted that data from Xeneta showed definite signs that contract rates were starting to fall.
“A high proportion of contracts will come up for renewal in the first half of next year, and it's clear that the lines are going into that renewal season, not on a great footing. Blank sailings aren't yet proving to be as effective at all as they were in the early stages of the pandemic. So now the spot rates have led, it's likely the contract rates will follow.”
The level of drop off in contract rates will vary by line, trade focus, and the amount of spot versus contract business they have. MSI does not expect contract rates to fall all the way back to weak market levels in the pre-pandemic era.
Impact on container line earnings
The big question for lines is when will the fall in freight rates start impact earnings, which remained at record levels in Q3 2022. “The first thing that you'll see is that different lines are going to experience the next several quarters in quite different ways. So, lines that have a particular focus on the spot business of Transpacific Asia to US trades, they're likely to come under pressure sooner than the bigger more or the lines which have a more diverse cargo base across different regions,” Richards says. Similarly, lines with more contract versus spot cargo will see more earnings longevity.
“You're looking more towards the middle of next year, for the industry as a whole and that earnings picture to begin to look more normal,” he explains. However, this will not be at the level of ultra-thin margins seen in some pre-pandemic years.