2023, characterized by the drawback of Covid impact and the new Red Sea crisis effects, still showed positive results for the top container carriers who again reached billions in profits.
Last May, for the first time since September 2022, the Asia-North Europe westbound trade surpassed again the 5.000$ threshold. With the Drewry WCI increasing again this month above 4.200$, more than a 150% year-on-year increase and almost a 200% increase compared to pre-pandemic levels.
The above conditions would seem to suggest a healthy trend of the market, however, appearances can be deceiving.
The premises of the current scenario, as well as the future implications coming from other factors, are in plain sight for all market actors.
Houthi’s attacks and the Red Sea Crisis led to a second surge in rates after the pandemic. This raise is logical and led by two relatively simple factors:
⁃ Market offer shrank due to the cape of good hope routing, lengthy rotations and fewer vessels to serve carriers’ services. With about 30% of global container volumes passing through the Suez Canal and a 30% increase in transit time, the crisis is reducing the effective capacity by 9% according to J.P. Morgan. Other sources however mention a far stronger impact up to a 20% reduction. Meanwhile, Maersk and Hapag Lloyd have lately ceased offering some of their services to ensure the service and focus the fleet on the most profitable trades.
⁃ New port congestions in China and Southeast Asia since early 2024 are also impacting the space offer, with Singapore berthing delayed by almost 7 days. The latest congestion contributed to blocking about 2% of vessels capacity according to a Bank of America report, strengthening the current container supply crisis.
It is clear how rates are sustained by a political emergency, reinforced by congestion which is not new to the market.
However, what is the underlying supply health? As stated above, the global container capacity has been cut down by roughly 11% (almost 3.2 million TEU), but let’s try to draw up some hypotheses for the coming years.
Hoping for a peaceful and stable global politics, the next two years could show a potential injection of 9 million TEU in the supply – of which 5 coming from the 2024/2025 orderbook – equal about 30% of the current existing fleet.
According to Alphaliner, in 2025 the adjusted global fleet will
surpass 33 million TEU. Megamax vessels (18.000+ capacity) just surpassed the 4 million TEU, still representing a fairly young fleet mostly covering the Asia-Europe trade.
The above figures must be confronted with a world GDP growing at a slower pace if compared to the container fleet. Considering a moderate growth in transport demand and a not-as-slow increase in supply volumes, rough seas are expected once container freights’ “golden age” drops.
Some of the top carriers are getting ready to face the challenges coming from the oversupply: diversification and vertical integration (MSC in particular constantly expanding its influence in the maritime and transport sector), new alliances, focus on cost saving and efficiencies. Others however still seem to be looking for ways to adapt.
Brace yourself for the coming years, even if being linear and constant, the container market is not for the weak of heart.
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(Image Source: Logitude World)
