Market Dynamics:
The container shipping market strength hinges on rerouting via the Cape of Good Hope due to ongoing conflicts in the Red Sea. Ship supply is projected to grow by 10.3% in 2024 and 5.3% in 2025, with a fleet expansion of 15.6% between the end of 2023 and the end of 2025.
Rerouting Impacts:
Attacks in the Red Sea have redirected nearly all container ships around the Cape of Good Hope, increasing average sailing distances by 10% and subsequently boosting ship demand. This rerouting is expected to persist throughout 2024, with a potential return to normal routes via the Suez Canal in 2025.
Economic Context:
According to the IMF, the global economy is set to grow by 3.2% in both 2024 and 2025. The world’s five largest economies, except the EU, are forecast to grow slower compared to 2023. Retail sales in the US and EU remain stable, with US consumers spending more despite lower savings compared to pre-pandemic levels.
Freight and Charter Rates:
Time charter rates in June 2024 have surged by 113% compared to the end of 2023. The Chinese Containerized Freight Index (CCFI) indicates a 90% increase in average freight rates for Chinese exports from the end of 2023 to June 2024.
Fleet and Shipbuilding:
Ship deliveries are anticipated to reach a record high in 2024, surpassing the previous peak in 2023. Contracting of new ships has slowed, with monthly averages dropping from 130,000 TEU in 2023 to 60,000 TEU in the first five months of 2024. Recycling volumes are expected to remain low in 2024 due to high ship demand, potentially increasing in 2025.
Supply Chain and Congestion:
Increased congestion has been observed in several transshipment hubs due to rerouting. Failure to renew the longshoremen contract for the US East and Gulf Coasts could further disrupt the market. Sailing speeds have increased slightly due to longer routes but are expected to reduce in 2025 with the return to normal routes.
Demand and Growth:
Container volume growth for 2024 is forecasted at 5.0-6.0%, with head-haul and regional trades expected to grow at 5.5-6.5%. North American imports are set to return to growth, with a projected increase of 8.5-9.5% for the full year 2024.
Risks and Uncertainties:
Trade disputes, particularly between the EU, US, and China, pose significant risks. Potential increases in tariffs, especially if driven by political changes in the US, could affect import volumes and shift production locations. Economic conditions, such as inflation and interest rates, could impact consumer spending and business operations, influencing overall volume growth.
Macro Environment:
The ongoing Houthi attacks in the Red Sea have drastically reduced ship capacity transiting the Suez Canal, necessitating reroutes around the Cape of Good Hope. Labour negotiations in the US could lead to increased port congestion if conflicts arise.
Future Outlook:
Freight rates and charter rates are expected to follow the supply/demand balance, potentially weakening in the second half of 2024 and further in 2025. Secondhand ship prices may follow a similar trend, while newbuilding prices will depend on contracting activities in other shipping sectors.
The container shipping market in 2024 is characterized by high demand driven by longer sailing routes, stable yet cautiously optimistic economic conditions, and potential disruptions due to geopolitical and economic factors. The rerouting due to conflicts in the Red Sea significantly impacts supply chains, leading to increased sailing speeds and congestion at key transshipment hubs. As global economies navigate through these challenges, the container shipping market remains vigilant, balancing supply growth with fluctuating demand and external risks.
