2023-11-29 
The global container shipping industry is expected to face increasing challenges, with Drewry's latest container forecaster projecting a $15 billion industry-wide loss for the upcoming year. Drewry's senior manager for container research, Simon Heaney, presented a pessimistic outlook, anticipating a 60% reduction in global freight rates for this year (combined spot and contract rates) and a further 33% drop in 2024. He emphasized that this challenge is not limited to 2024 but will persist in subsequent years.
Carriers will confront a relentless struggle to maintain rates above operational costs, and Heaney highlighted the likelihood of an extreme carrier response as the cash drain intensifies. The low freight rates underscore the significant gap between supply and demand, with Drewry's global supply:demand index reaching an all-time low. Predictions indicate a 6.4% growth in supply compared to a 2% growth in demand for the next year.
Heaney argued that carriers have delayed addressing capacity issues, and potential solutions such as vessel demolitions, slow-steaming, delayed delivery of new vessels, idling more vessels, and blanking sailings may be too challenging to implement effectively. Even with the most optimistic scenario, achieving a balanced market appears unlikely.
While many carriers are renewing their fleets to comply with environmental regulations, the slower removal of older vessels is contributing to increased pressure on the industry. Demolitions for the current year are estimated at 115,000 TEU, but a substantial spike to 600,000 TEU is predicted for the following year.
Carriers are expected to post an EBIT profit of $20 billion for 2023, but the outlook for the next year is a $15 billion loss due to the ongoing decline in freight rates. Heaney suggested that the anticipated repeal of CBER (Container Shipping Block Exemption Regulation) in the coming year may not have as significant an impact as initially expected, with minimal effects beyond short-term legal uncertainty. He identified geopolitical issues and 'black swan' risks, such as extreme climate events, as the main threats. Contrary to previous years where port throughput quickly recovered after a decrease, Drewry anticipates a different scenario in the coming years, describing 2022-2023 as the "long hangover of a spending splurge" on new tonnage. The report concludes that the abnormal demand surge in 2020-2021 led to a subsequent reduction in consumer spending, creating a prolonged void in the container market that will persist even as the global economy advances, highlighting the disappearance of the traditional relationship between GDP and container volumes.
Source:Gloomy outlook for container shipping – and not just for 2024 - The Loadstar
