Carriers put the frighteners on shippers, but rates uptick 'just a blip'

04.26.2023

The recent uptick in container spot rates is «transitory», according to maritime consultant Drewry, which remains «unconvinced freight rates have bottomed-out» and expects carrier losses.

Senior manager Simon Heaney said: «I think carriers have done a pretty good job in frightening shippers that more capacity reductions would follow if GRIs were not at least partially successful.»

Indeed, some UK-based shippers The Loadstar has spoken to in the past few weeks have been advised by their carrier reps of further rate increases on the Asia-North Europe tradelane, and have also seen cargo rollovers, particularly for heavy boxes.

«We would be more confident in terms of calling the recovery if the foundations were in place, but they are just not,» said Mr Heaney during Drewry’s Container Market Outlook presentation today.

He argued that demand «remained incredibly weak», while the containership orderbook for this year and next was still «vast, and about to land with vengeance very soon»; while demolitions and idle fleet numbers «were still way below what we expected».

He added: «Without those building blocks, in our view this recent uptick in both spot rates and charter hire prices is transitory.»

According to Alphaliner data, only 28 ships, with a capacity of 48,555 teu, have been sold for demolition this year, significantly below the expectations of industry analysts. Drewry has slashed its box ship scrapping forecast from the 900,000 teu in its December update, to 300,000 teu. as carriers try to «milk» demand from emerging markets.

Mr Heaney said Europe and North America «looked like being the sick dogs this year», as far as demand was concerned, hobbled by high inflation and interest rate hikes holding back consumer spending. Other regions would have «different corrective timelines» in their respective cycles, he explained.

He did say he expected volumes to pick up for the traditional late summer peak season, albeit from currently depressed numbers, but they would «look fairly anaemic on a year-on-year comparison».

And Drewry’s outlook for freight rates will make uncomfortable reading for liner shipping companies and their shareholders, said Mr Heaney.

«We are now anticipating that average global freight rates, a blend of spot and contract rates across all trades, will drop 60% this year... and in our first forecast for rates in 2024, we are anticipating prices will fall again, with the sharpest correction being on east-west trades, where we expect rates will fall by 24%.»

The analyst predicts the impact on the bottom lines of carriers from the collapse in freight rates will be «dramatic». After record profits in the past two years, Drewry is forecasting an ebit of $16.5bn this year for the liner industry — supported by an overhang of expiring lucrative contracts. But, for 2024, it is modelling a cumulative $10m loss for carriers.

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