The Shipping Shortage: The State of the Industry
The global shipping container fleet reached a milestone in June, with the world capacity topping 25 million TEUs (up 3% YoY), and an increase of 3.5% is expected by year-end, net of scrapping.
The order book accounts for 7 million TEUs of fresh capacity for delivery in 2023 and 2024, which is the equivalent of 27% of the existing fleet (an unprecedented ratio since 2011 when capacity was only 15 million TEUs). The nominal fleet is expected to grow by 8% in 2023 and 9% in 2024, excluding slippage or scrapping.
The idle fleet was kept at a bare minimum for 18 months in a row — today, it’s around 3%. A notable effect of the shipping shortage is the severe capacity concentration.
MSC is the most active carrier growing its capacity with an order book of 1.5 million TEUs. MSC’s worldwide market share rose from 17.7% to about 19%. Meanwhile, the top seven shipping groups still control about 80% of the available capacity.
Global container demand is proving negative YoY in early 2022 after record container growth throughout 2021. The sluggish Q1 was influenced by a lack of capacity available to shippers and volumes being pushed from one month to the next.
YTD volumes were only down 2% at the end of May but still 2% higher than in 2020 (pre-COVID). While head-haul (-0.4% YoY) and regional (-1.4% YoY) container volumes were down in March 2022, they remained 11% and 1.8% up compared to March 2019.
Considering the effects of the Ukraine War and China’s zero-COVID policy on the world’s economy, container demand fell by 4% in April. The YTD global demand (-1.5%) drop remains modest, with Africa being the most hit region and North America still showing positive patterns.
While the Asian trades are weaker, Transatlantic Westbound showed healthy growth in April and May. In April, the IMF(International Monetary Fund) lowered its GDP growth forecast to 3.6% for 2022 and 2023.
IMF also estimates GDP for the G7 countries shrunk by 0.1% for Q1 2022, given the latest indicators:
China’s initiatives to curtail COVID infections and further lockdown.
OECD Consumer Confidence Index is at its lowest since 2011.
Spending shifts back from goods to services as demand for manufactured goods decreases.
U.S. retail inventories in March 2022 are up 27% from June 2021.
No sign of inflation being controlled as interest rate hikes accelerate, impacting consumer spending.
U.S. inflation has been at its highest since the 1980s.
Rates have dropped 17% in July compared to January, according to Drewry’s World Container Freight Index.
But it is still 300% higher than in January 2020 and 5% higher than June 2021. Meanwhile, spot rates on the Asian export and import lanes have recently softened.
SCFI (Shanghai Shipping Exchange) reports July rates are down 8% to USWC or 13% to Latin America compared to January. The Transatlantic Westbound (+14% since January), Oceania to the USA (+65% YoY) or Europe to Latin America (+50%) show healthy levels.
Spot and short-term rates, especially Asian lanes, are expected to remain softer for the next several weeks as demand may quiet head-haul trades. With additional disruption on the horizon and the likelihood that carriers will closely manage capacity to maintain profitability, ocean rates are not expected to collapse.
Ten percent of scheduled sailings are now blanked for July on the three main East-West routes.
Volumes have reduced somewhat, but ports and intermodal networks are still struggling to cope with incoming flows and backlogs.
Global schedule integrity is still sub 35%, with no sign of improvement. Port productivity is suffering due to:
Truck driver shortages
Labor shortages and unrest
Congestion, which was improving somewhat at ports and on the U.S. West coast, has worsened in Europe and the U.S. East Coast.
Rotterdam, Antwerp, Southampton and Hamburg report yard utilization over 90%.
Because of delays, around 10% of the capacity is still ineffective.
Head-haul trades require more capacity injection to cope.
To the detriment of back-haul routes, carriers skip port calls to evacuate empties fasts, which contributes to congestion. Besides inflation, economic outlooks suggest a possible slowdown in demand.
And besides new vessel deliveries accelerating in the months ahead, the capacity growth is likely lower than what order books suggest:
Because of IMO 2023 demands, scrapping will accelerate.
Drewry estimates IMO 2023 and disruption will still remove up to 8% of the actual capacity
Lack of labor and relative port productivity is a challenge.
Waiting times and congestion render the capacity ineffective (still over 10%).
There is a risk of new COVID waves and restrictions.
Long term, freight rates are expected to remain high due to the following indicators:
Charter rates holding
Congestion affecting the availability of empty containers
Fuel costs not going down
IMO 2023 cost uncertainties
Port congestion and cost increases
Port and intermodal labor unrest
Schedule disruption and costs for the additional capacity needed
The majority of the existing 6,000 ships will need to be drydocked from 2022 onward for technical modifications due to the requirement that vessels be EEXI compliant by 2023, which will further reduce global capacity and extend transit times.
If you’re shipping wine worldwide, staying up-to-date on the latest news about the shipping shortage is important. It’s also important to work with a shipping company you can trust to get your goods where they need to go on time and in good condition.
Contact us to discuss how we can help you.