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One Hundred Ports: Container shipping bids farewell to the boom times

After a rapid normalisation, the prospects for the box carrier sector are clouded by economic and capacity concerns

Relief from the chaos of the past few years will be welcomed by terminal operators; but for container lines, a reversion to normal looks like overcapacity and lower earnings

THIS time in 2022, container ports were still dealing with the aftermath of the greatest cargo surge in box shipping’s history.

Now, however, they face a markedly different prospect, as demand eases back and economic travails challenge expectations of growth.

For their container line customers, the picture is also bleaker than it was a year ago, although two years of stratospheric earnings and profits will somewhat cushion the blow of the downturn.

The cargo surge that was driven by consumers stuck at home during the pandemic is over. Consumers are now back to their normal spending patterns, putting more of their money towards services than goods.

This was always going to happen. There is only so much home-office furniture that can be usefully deployed.

The fall in cargo volumes, and the return to more normalised working patterns following the pandemic, has freed up hinterland supply chains, allowing cargo to move off docks.

This, in turn, has seen the end of congestion, with the number of ships tied up waiting for berths dwindling over the past year.

And that, in turn, has solved the problem of there being insufficient capacity at sea to carry cargo.

It was that capacity shortage — and high demand — that drove up rates to record-breaking levels. However, with that capacity shortage removed, and demand falling, freight rates have followed suit.

The simple laws of supply and demand that benefitted carriers during the pandemic are now working against them.

That has been aided by decisions the carriers made themselves. Flush with money and short on capacity, from late 2021, box lines lined up at shipyards, desperate to get their hands on more tonnage. That tonnage has now started to hit the water.

Drewry estimates that by 2025, the capacity of the world containership fleet could reach as much as 30m teu. That means it will have grown by 50% since as recently as 2017.

Assuming that containerised freight continues to grow in line with global GDP — and that is assuming a lot — there will be far greater supply growth than demand growth over the next few years.

This does not mean carriers were foolish to order new tonnage during a period of artificial liquidity; they had more reasons to order than simply boosting their fleets.

Chief among these was the need to renew their ships. After the overcapacity seen in the market during the middle of the past decade, carriers had been slow to order new vessels.

The latest environmental regulations mean that newer eco-design ships are now a necessity if they are to remain cost-effective.

And, to meet regulations, many ships in fleets will need to slow down. Doing so will require additional tonnage to be deployed to allow for loops to remain consistent.

According to Vespucci Maritime chief executive Lars Jensen, adding a single ship to every deepsea service would soak up 5%-6% of capacity alone.

After a period where anything that floated was put into service, carriers will now also be looking at retiring older tonnage.

Scrapping the 3% of capacity not demolished during the pandemic, as well as returning to the normal demolition rate of 2% a year, would also help reduce capacity.

“If we start to take these into account, of that additional 20% coming into the market this year and next, 12% can be controlled,” Jensen said.

“That leaves 4% capacity growth a year. And that might be slightly more than demand this year, but it is not a disaster.”

It will, however, depend on how well carriers can manage that excess capacity.

Analysis by Sea-Intelligence shows that despite a weak opening to 2023’s peak season, carriers are actually scheduling far more capacity this year than in 2022.

“In a market where demand has only recently recovered slightly in Europe, and where the North American import growth continues to decline, the projection is obviously a significant problem for the upcoming market balance,” Sea-Intelligence chief executive Alan Murphy said.

“If the carriers do not change behaviour, this is what will happen. The carriers therefore appear to have a choice: resume active capacity management, or head into highly significant overcapacity.”

For shippers, that “active capacity management” means blanked sailings. So, after three years of having cargoes rolled because of a lack of ships, they now face the same due to an excess of ships.

One thing is certain for carriers: the boom is over, and they are unlikely to see its like again. The sector has renormalised and is rapidly trending back to its pre-pandemic norms.

The new challenges will be not with congestion, but with demand. High inflation and interest rates are hitting consumers where it hurts — and, with a still-precarious geopolitical situation apparent, any global economic upturn that could drive demand seems some way off.

This will no doubt come as a relief to terminal operators that struggled to handle the volumes during the crisis and can now go back to the business of shifting boxes — albeit somewhat fewer than there have been over the past few years.

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