Home > 2022 > The pendulum has begun to swing the other way for Oceanfreight?

The pendulum has begun to swing the other way for Oceanfreight?

The pendulum has begun to swing the other way for Oceanfreight?

 

THE COVID crisis saw freight rates escalate higher than they have ever been before, but as we emerge into the better normal, spot and contract rates are dropping. Given the gloomy outlook many have for 2023, there could be the possibility of a price-war happening between carriers as they all vy for the same cargo from different BCO’s.

Blank sailings to bring supply in line with demand will continue and likely increase in the coming weeks, but this may not be enough to mitigate the drop in volumes.

The Lunar New year will also play a part in the equation. The holiday is January 22 with China and Vietnam having an official week-long holiday running till January 27. Some ASEAN countries, like Singapore and Malaysia also have extended holidays during this period.

Normally there is a rush to move goods in the weeks before the holiday while many companies slow operations and reduce capacity for several weeks around and after the holiday but we are not seeing much of this expected uptick at the moment. As a result of these factors, some analysts say first quarter idled capacity could rise to two million TEU.

According to Sea-Intelligence CEO Alan Murphy: “In 2020, we saw an extension of Chinese New Year (CNY) due to the Covid outbreak. Given that demand growth has now stagnated, and freight rates are still dropping, it would make sense for the shipping lines to blank additional capacity during CNY 2023 to try and stem the bleeding freight rates.

“When we compare 2023 with both 2019 and the average capacity growth rate of 2015-2019, we see an extraordinary increase in deployed capacity,” said Mr Murphy.

Asia-North America west coast is seeing capacity growth of 35 to 38 per cent, Asia-North America east coast of a staggering 57 to 59 per cent, and Asia-North Europe of 28 to 42 per cent. Asia-Mediterranean is the only trade lane that is closer to the pre-Covid levels according to data from Sea-Intelligence.

Said Mr Murphy: “This development is quite concerning, as despite falling demand, deployed capacity during CNY 2023 is slated to be higher than the deployed capacity in 2021, where demand was absolutely surging. If demand continues to be sluggish, or outright contractions, given these capacity levels, freight rates will continue to tumble.”

With the shipping lines sitting on piles of cash, further helped by a highly profitable Q3, Sea-Intelligence speculates that the industry might end up in a situation where there is another price war, reminiscent of the 2015-2016 price war.

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