THE WATERS AHEAD

WHAT’S IN STORE FOR OCEAN CONTAINER SHIPPING IN 2023

Everyone in supply chain remembers that 2021 saw record-high ocean rates, caused by a combination of high demand and restocking during the post-pandemic recovery, while shipping lines worked together to limit supply. This led ocean carriers to unprecedented profits. For example, the Aponte family, who owns Mediterranean Shipping Company, became the richest family in Switzerland, and CMA-CGM became the most profitable company in France.

Last year saw a brutal return to more normal rate levels: traders found themselves overstocked, plus the Russian invasion of Ukraine caused abrupt spikes in energy and commodities, inflation, shortages, slower economic growth, all this leading to a near-recession in the developed world and misery in the developing world.

The summer and fall of 2022 saw ocean rates continue to go down, particularly from Asia to North America and Europe, with the tradi- tional “peak season surcharges” nonexistent. As 2023 began, ocean rates returned more or less to pre-pandemic levels, with some exceptions. The Westbound transatlantic trade, for example, remains strong. In the short term, everyone will watch developments in China after the Lunar New Year holidays. Just before the New Year, China saw a strict lockdown under the Chinese government’s “zero-COVID” policy, which had a substantial impact on economic activity, including a slowdown of exports.

Wait And See In China

Following widespread mass protests in December and in an unprecedented move, the Chinese government reversed its policy, lifted restrictions and it was “business as usual” for the Lunar New Year. But one factor may put a damper on the post-holidays boom in China: COVID -19. The whole country experienced high infection rates before the holidays and it will likely get worse when people return from their travels and get back to work. The vaccination rate in China is very low, compared to Western countries. The homemade vaccine is not very effective.

We will see what happens when China gets back to work. What will the Year of the Rabbit bring us? Will we see a surge in activities, increased exports and a resulting strong demand for ocean space or will the recovery be more subdued. As always in situations like this, ocean carriers are limiting supply with more blank sailings, cutting them in half, hoping to stabilize freight rates.

Looking at developments on the shippers’ side, several large retailers had started to operate their own shipping lines with chartered tonnage during the pandemic, in order to move their cargo in a timely fashion. In the meantime, many of them have terminated these ventures as container space is now available and rates affordable. Ikea is one of them, having sold its containers and stopped their chartering activities. Incidentally, Ikea also announced they were shifting more production from Asia to Turkey, in order to shorten their supply chain for European customers. Other shippers like Costco and Aldi went through the same process and ended their in-house ocean shipping venture.

On the carrier side, a surprise announcement was recently made, with Maersk and MSC parting company and ending their vessel-sharing partnership, known as the “2M,” formed in 2015. Other carriers had made similar agreements, pooling tonnage together under the Ocean Alliance and “THE Alliance” banners. These partnerships together control about 75 per cent of the global container capacity and we can expect some reshuffling of partners in the coming months. Another tricky development in ocean freight is that, as trade slows and rates are at their lowest, bigger containerships keep coming on stream. In January, Evergreen received its giant 24,000-TEU containership, the Ever Acme from its Chinese shipbuilder four months ahead of schedule. This is the third 24,000-TEU containership delivered to the Taiwanese carrier, the first one, the Ever A lot was handed over in June 2022 and the second one, the Ever Aria, in September 2022. For reference, these are 20-per cent bigger than the Ever Given which was stuck in the Suez Canal in March 2021. Other carriers, Maersk, MSC, CMA-CGM, and so on, have bigger ships coming on stream, which raises the prospect of severe overcapacity in the trade, potentially leading to yet lower rates, unless the world economy picks up, unlikely while Russian aggression in Ukraine continues.

Air Cargo Impacts

What about the impact on air cargo? The steady fall of ocean rates has triggered some modal shift from air to sea: with ocean rates from China at US$25,000/ container, airfreight can become an attractive alternative, whereas with ocean rates closer to US$4,000, air becomes prohibitive, so this dramatic lowering of ocean rates is good news for ocean lines and bad news for airlines.

This will not have a huge impact for ocean carriers, as volumes carried

23_000098_Supply_Professional_FEB_CN by air represent a fraction of what is transported by ocean. But any shift from air to ocean will have an impact on airlines, in an already somewhat depressed market. Why would this be pertinent for ocean carriers? It’s because several of them, in particular Maersk, MSC and CMA-CGM, have invested some of their extraordinary profits into cargo planes, at a time where air rates were at their highest. But as the air cargo market softens, we’ve seen for example CMA-CGM, leasing out their recently purchased freighters to established cargo airlines, instead of operating them themselves.

As the year is still young and economic prospects uncertain, we have to watch developments in China, as exports coming from there have a huge influence on developments in ocean shipping, the lanes China to North America and China to Europe being the busiest and the most profitable for ocean carriers. But we have to take notice of the growing importance of India. As China’s population is shrinking and its economy experiences slower growth, India is firing on all cylinders and could soon replace China as the factory of the world. Who knows if in 10 years, or even before, we won’t be watching ocean movements around India’s national holiday, Diwali, instead of China’s Lunar New Year. SP

BY MICHAEL POWER