Ocean Freight Market Update & Forecast for 2024.
BY DYNAMO WELTWEIT LOGISTIK, MARCH 11, 2024.
EXECUTIVE SUMMARY/ABSTRACT : High concentration of international trade: 80% of all goods are carried by sea.
High concentration in the market:
· The three leading shipbuilding countries of China, the Republic of Korea, and Japan accounted for 93 percent of the total tonnage delivered; China held the lion’s share of 47 percent.
· Top 10 carriers control 83% of container capacity.
The freight Maritime Market is supply-managed. Carriers manage the supply side of the equation, by: i) scrapping, ii) slow steaming, and ii) blank sailings.
For the year 2024, it is estimated that the maritime shipping market size in dollars will be in the vicinity of US$381.69 billion; in 2029 it is expected to reach US$ 471.81 billion, being, the fastest-growing market: Asia Pacific.
Between 1980 and 2022, the deadweight tonnage of container ships grew from about 11 million metric tons to roughly 293 million metric tons.
The Fleet is aging. In 2022, the global ship-carrying capacity expanded at an annual rate of 3.2 percent with overall tonnage hitting nearly 2.3 billion deadweight tons. On average the global fleet was two years older in 2023, compared to a decade earlier.
The global newbuilding capacity delivered in 2022 fell by 8.6 percent, totaling 55.6 million GT, down from over 60 million GT in 2021.
More than half of the global fleet is over 15 years of age.
Owners are showing less appetite for ordering new ships, except for container and LNG vessels.
Carriers facing increased input costs. Bunker fuel is scarce and prices are going up due to ship diversion from the Red Sea to use the longer route around the Cape of Good Hope. Conflict is scaling up.
Port congestion and delays have eased but due to conflicts and drought, we are experiencing current blockages in the Panama and Suez canals, which not only cause delays but also may cause port congestion and backlogs. There are also strikes threatening to shut down ports this 2024 in major global ports.
The imbalance in trade flows, with more goods moving in one direction than the other, can lead to a shortage of containers in some regions. China no longer is the most important trade partner of the USA due to increased economic sanctions.
Lack of funding for new ship building.
Dynamo Weltweit Logistik thinks that the market will experience, in the short term, freight rate increases, and in the coming months and for the year 2024, there will be very high market volatility.
Navigating Volatility: communicate regularly with Dynamo Weltweit Logistik
All these concepts are further discussed in this paper.
BALANCE BETWEEN SUPPLY AND DEMAND IN THE SHIPPING INDUSTRY.
Maritime shipping is the backbone of world trade, with an estimated 80% of all goods carried by sea. Over the past decades, the volume of freight transported by ships has increased significantly. In 2021, about 1.95 billion metric tons of cargo were shipped globally, up from some 0.1 billion metric tons in 1980.
For the year 2024, it is estimated that the maritime shipping market size in dollars will be in the vicinity of US$381.69 billion; in 2029 it is expected to reach US$ 471.81 billion, being, the fastest-growing market: Asia Pacific.
The global container fleet has grown in size to meet this demand. Between 1980 and 2022, the deadweight tonnage of container ships grew from about 11 million metric tons to roughly 293 million metric tons. The Mediterranean Shipping Company is currently the largest container ship operator globally, with a total capacity of over five million TEUs.
In 2023, the supply of shipping capacity and services was affected by global economic developments, which determined the demand for shipping. The global fleet continued to grow but was aging amid rising uncertainty about fleet renewal timelines. In 2022, the global ship-carrying capacity expanded at an annual rate of 3.2 percent with overall tonnage hitting nearly 2.3 billion deadweight tons. On average the global fleet was two years older in 2023, compared to a decade earlier.
In 2022, container freight rates reached all-time highs in the first half of the year amid the supply chain crisis, before falling in the second half, mainly due to economic pressures. The downward trend continued into 2023 bringing container freight rates back to their pre-pandemic levels. Dry bulk freight rates followed a similar trend, showing high volatility and a decline in the second half of 2022 as demand for dry bulk commodities in China weakened. In 2023, dry bulk freight rates initially fell but then rose sharply.
The balance between supply and demand in the shipping industry is complex and influenced by many factors, other than tonnage availability, vessel scrapping, and demand for transport.
MANY FACTORS WHICH AFFECT THE SUPPLY AND DEMAND OF MARITIME TRANSPORT.
GLOBAL FLEET GROWTH:
“In 2022, global fleet capacity expanded by 3.2 percent over the previous year. Overall tonnage totaled 2.27 billion dead weight tons (figure 2.1). Oil tanker fleet capacity increased by 3.4 percent, up from 1.6 percent growth in 2021. For 2023 and 2024, tanker fleet expansion is expected to be limited given the small order book. Bulk carrier capacity increased at a moderate 2.8 percent while the capacity of liquified gas carriers increased by 5.0 percent. The global newbuilding capacity delivered in 2022 fell by 8.6 percent, totaling 55.6 million GT, down from over 60 million GT in 2021. Dry bulk carriers accounted for the largest share (31.4 percent) of tonnage delivered in 2022, followed by oil tankers and container vessels (table 2.2). The three leading shipbuilding countries of China, the Republic of Korea, and Japan accounted for 93 percent of the total tonnage delivered; China held the lion’s share of 47 percent.
The age profile of the global fleet has implications for fleet renewal and recycling patterns, which are key factors influencing compliance with growing environmental regulations. At the start of 2023, commercial ships averaged 22.2 years of age, a further increase over the previous year. On average, the global fleet was two years older in 2023 compared to a decade before and more than half the fleet is over 15 years of age. “
GLOBAL FLEET RENEWAL:
Owners are showing less appetite for ordering new ships, except for container and LNG vessels. At the start of 2023, the order book stood at 4,029 vessels, totaling 237.3 million deadweight tons. This was down 2.1 percent in terms of vessel numbers compared to the same period in 2022 but up 4.1 percent in deadweight tons terms. The global ship order book remains moderate at 10 percent of the world’s existing fleet (Clarkson’s Research, 2023a). The value of the order book increased by nearly 20 percent in the first quarter of 2023, compared to the same quarter of the previous year. This reflects a more sophisticated vessel product mix and a rising demand for green technology and alternative-fueled vessels.
SHIPBUILDING YARD CAPACITY AND PRICES WILL ALSO SHAPE SHIP TONNAGE SUPPLY
Shipyard capacity is currently facing constraints. Tanker and dry bulk owners are anticipating long waiting times and high building prices. Increasing shipbuilding capacity is crucial to ensure that shipping meets global demand and sustainability goals. Global shipyard capacity has decreased dramatically since the global financial crisis (Chambers, 2023b).
Over 3,500 ships needed to be built or refitted annually until 2050 (Splash 247.com, 2022). At its peak in 2010, the global shipbuilding industry built 2,700 vessels a year (Chambers, 2023b). With consolidation, the number of shipyards fell from about 700 in 2007 to about 300 by 2022 (BRS Group,2023). A total of 68 percent, 92 percent, and 71 percent of the shipbuilding capacity in China, the Republic of Korea, and Japan, respectively, is in the hands of only three shipbuilding groups (Chambers,2023c). These three economies are responsible for constructing nearly the entire world's dead weight capacity on order.
Tighter environmental regulations, new ship energy-saving technologies, and the transition towards alternative fuels are driving reliance on a small group of builders in each vessel segment. At the same time, many yards are struggling to attract orders. Changes in ordering patterns over the years have resulted in a lopsided impact on the industry. Unlike smaller players, large shipyards are fully booked for three years and competition for space by some ship types puts pressure on yards to diversify and reactivate existing capacity. For example, in 2022, a few additional Chinese yards entered the LNG carrier segment (BRS Group, 2023).
Ship financing has also changed since the 2010 financial crisis, with a reduction in the capacity of the overall ship finance market (Clarkson’s Research, 2023c). While shipping has traditionally relied on bank debt, other financial structures include equity, debts, and leasing (Stopford, 1997). There has also been a geographical move eastward with many western banks reducing their exposure to shipping.
In 2021 and 2022, shipping finance activity remained modest with shipowners relying less on debt for liquidity and more on operations, thanks to a strong market and high freight rate environment. Banks saw repayment activity increase, especially in container shipping (Clarkson’s Research, 2023c). The financing landscape is also influenced by the rise in green finance, which requires ships to comply with conditions such as the Poseidon Principles, the Climate Bonds Initiative, the European Union Taxonomy, or the Green Shipping Program.
More recently, the collapse of three banks in the United States and the rescue of Credit Suisse have added uncertainty to this capital-intensive industry. Credit Suisse is the world’s 10th largest shipping lender with about half its portfolio involving Greek shipowners. UBS Group AG will likely shrink the $10 billion shipping portfolio it inherited from Credit Suisse Group AG after its emergency takeover in March 2023 (Paris C,2023). Speculation about the future of shipping portfolios underscores the importance for shipowners to continue diversifying their sources of finance.
RISING INPUT COSTS TO MARITIME CARRIERS:
BUNKERING demand in Africa remained strong in recent days to boost marine fuel prices, as containerships continue to divert from the Red Sea to use the longer route around the Cape of Good Hope.
Monjasa, a major bunker supplier in Africa, reported high refueling demand in its African supply locations such as Namibia and Togo, as vessels typically require a top-up in Africa to complete the longer voyage, Simone Piredda, senior trader at Monjasa, told Lloyd’s List.
Bunker supply availability in some African locations could be diminished in the coming months if widespread diversions persist because some of the ports heavily rely on fuel oil imports to meet demand because of limited local oil refining capacity.
“The global Bunker Fuel market size was valued at USD 127,863.03 million in 2022 and is expected to expand at a CAGR of 4.87% during the forecast period, reaching USD 170,066.34 million by 2028.”
https://www.linkedin.com/pulse/2023-global-bunker-fuel-market-demand-supply-overview/
PORT CONGESTION AND DELAYS:
Congestion at ports can lead to significant delays in the delivery of goods. For instance, in 2024, two key container shipping “chokepoints” — the Panama Canal and the Bab-el-Mandeb Strait in the Red Sea — are simultaneously under threat.
PORT CARGO HANDLING PERFORMANCE:
Among the top 25 ports globally, 18 are in Asia, 11 in Eastern Asia, and four in Western Asia. Asian ports dominate the global ranking, with a median index value of +53.6. This is followed by Latin America and the Caribbean (median index of +12.0), Africa (-27.3), Oceania (-33.1), and North America (-42.6). The performance of North American ports is not as efficient as one would think. True, statistics reflect post-COVID-19 restrictions.
IMBALANCED TRADE FLOWS AND ECONOMIC SANCTIONS.
The imbalance in trade flows, with more goods moving in one direction than the other, can lead to a shortage of containers in some regions. Let us mention that USA imports from Mexico have recently surpassed continental China. This is the result of additional tariffs levied on Chinese imports since the Trump administration.
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RATIONALIZATION AND ALLIANCES:
Shipping lines have formed alliances and rationalized their services, which can lead to less frequency and ports of call.
Top 10 carriers control 83% of container capacity. “It is important to note that in the alliances, only capacity is coordinated, not commercial activities and pricing. However, this means that the design of core ocean products, as well as managing the supply side of the equation, is clearly controlled by just three groups. On the commercial side, this has been reduced to nine main players, of which two — HMM and Yang Ming — are substantially smaller than the top seven.”
Container liners generally have three options to stir capacity and reduce the supply overhang:
Scrapping: A big question mark is how container liners will act in the demolition of older vessels. Near the end of the lifecycle, as older vessel values approach the scrapping level, shipping companies may decide to take out capacity. At the same time, liners will avoid capital losses as much as possible. Sustainability regulations could speed up demolition activity in the coming years, although it is not speeding up so far.
(Super)slow steaming: Another option to manage overcapacity is slow steaming. Sailing speed figures show that container vessels have slowed down their speeds in anticipation of new vessel inflows. In the first quarter, the average speed came down to 13.8 knots, 4% lower than a year earlier. Limited further speed reduction is still possible without suboptimality.
Cancel (blank) sailings: During the pandemic, carriers learned how to manage capacity (within alliances) to balance supply-demand in the short run by taking out (‘blanking’) sailings because of a significant slowdown. This worked relatively well, although it also affected reliability for clients. Cancelling sailings in case of sinking occupation rates is logical; about 65% of costs in container shipping are variable.
CANCELED SAILINGS:
Across the major East-West head haul trades: Transpacific, Transatlantic, and Asia-North Europe & Med, 100 canceled sailings have been announced between week 07 (19 Feb-26 Feb) and week 11 (11 Mar-17 Mar), out of a total of 650 scheduled sailings, representing 15% cancellation rate.
During this period, 56% of the blank sailings will occur on the Transpacific Eastbound, 37% on the Asia-North Europe and Med, and 7% on the Transatlantic Westbound trade.
Over the next five weeks, OCEAN Alliance has announced 35 cancellations, followed by 2M and THE Alliance with 23 and 22 cancellations, respectively. During the same period, 21 blank sailings have been implemented by non-Alliance services.
As can be seen above, it is projected that 85% of ships will adhere to their scheduled sailings over the five weeks.”
THREAT OF STRIKES:
The dockworkers union serving East and Gulf Coast ports is threatening to strike one month before the USA presidential elections.
“Even before contract negotiations get underway, the threat of a strike shutting down US ports on the east and Gulf coasts next year is looming.
The International Longshoremen’s Association (ILA), which represents 45,000 dockworkers at the ports, reaffirmed its commitment to strike if negotiations for a new labour contract do not reach a fruitful conclusion by 30 September 2024, when the current six-year agreement expires.”
January 18, 20242:12 AM GMT-5Updated 24 days ago
SYDNEY, Jan 18 (Reuters) - Australia's industrial relations minister on Thursday met representatives of port operator DP World and its employee union but refused to intervene in a months-long workplace dispute that is throttling traffic at major ports across the country.
The Maritime Union of Australia and Dubai-owned DP World, which handles roughly 40% of the country's container freight through its ports, have been locked in an dispute over pay and conditions since October.
Shipping companies are facing a 2024 that could lead to losses in the first half of the year, ships being decommissioned, port strikes, layoffs and a possible price war, according to analysts.
OUTLOOK OF MARITIME TRANSPORT FREIGHT RATES (2024).
LOOKING FORWARD:
We strongly believe that various factors such as port congestion, geopolitical conflicts (Ukraine Russia; China Taiwan; Middle East), global economic conditions, and climate change (Panamá Canal) will impact adversely, the balance between supply and demand in the shipping industry, this coming 2024. It’s also worth noting that the situation can vary across different regions. Freight markets during 2024 will continue to experience a very high volatility. Do not expect freight rates to stabilize, at least not yet!.
Following the attacks in the Red Sea, TEU spot rates have seen a sharp and rapid increase, similar to patterns observed during the pandemic. High Inflation levels remain, exceeding historical levels, driven by emerging supply chain risks mainly due to the situation in the Red Sea, industrial actions, and other factors.
Other opinions suggest; like, “Emily Stausbøll, Xeneta Market Analyst, on the Red Sea Crisis, that: “Shippers have generally accepted the carrier’s argument that it takes time to react to such an unexpected crisis, but it now appears some shippers are pushing back and managing to agree lower rates. So, we may see rates begin to flatten or decline sooner than many anticipated in February” of 2024.” She continues: “However, the market low – the cheapest rates shippers are paying – is set to increase from USD 2940 per FEU today to USD 4840 in February. With the bigger, large volume shippers tending to occupy the lower end of the market, this is good news for carriers and may even increase the amount of money they make overall.”
TRENDS IN FREIGHT EXCHANGES amp; MARKETS.
“The Baltic Exchange's main sea freight index, measuring global shipping costs, rose about 4.9% to its highest level since January 11 at 1,545 points on Friday, after two consecutive sessions of losses. The capesize index, transporting 150,000-tonne cargoes such as iron ore and coal, advanced 8.4% to a four-week high of 2,381 points; and the Panamax index, tracking ships carrying coal or grain weighing 60,000 to 70,000 tons, increased 2.4% to a one-week high of 1,509 points. Among smaller vessels, the supramax index added 3 points to 1,053 points. The benchmark index was up 4.7% for the week. “
“With these operational challenges and the Lunar New Year ocean rates from Asia to N. America increased 38% to the West Coast last week, past $4K/FEU and 21% to the East Coast to the $6k/FEU level, while Asia to N. Europe and Mediterranean rates leveled off at $5,500/FEU and $6,500/FEU respectively.”
GLOBAL SUPPLY CHAIN PRESSURE INDEX
The Federal Reserve Bank of New York publishes a “Global Supply Chain Pressure Index (GSCPI)” which integrates transportation cost data and manufacturing indicators to provide a gauge of supply chain conditions.
The GSCPI integrates several commonly used metrics to provide a comprehensive summary of potential supply chain disruptions. Global transportation costs are measured by employing data from the Baltic Dry Index (BDI) and the Harpex index, as well as cost indices from the U.S. Bureau of Labor Statistics. The GSCPI also uses several supply chain-related components from Purchasing Managers’ Index (PMI) surveys, focusing on manufacturing firms across seven interconnected economies: China, the euro area, Japan, South Korea, Taiwan, the United Kingdom, and the United States.
The index shows for the last months of 2023 (note it has started an upward trend:
The chart shows the standard deviation of the index to zero. For January 31st, 2024, the deviation was -0.11. Please see the index for the months corresponding to the years 2021 and 2022, which confirms the post-COVID-19 bottlenecks.
NAVIGATING VOLATILITY:
Despite potential delays and volatile freight shipping costs, there are a few steps importers can take right now:
COMMUNICATE REGULARLY WITH DYNAMO WELTWEIT LOGISTIK.This is more important than ever – staying in touch means you’ll have a better handle on your transit time and stay on top of any changes that may arise.
BUFFER YOUR FREIGHT BUDGET AND TRANSIT TIMEfor changes. Costs due to unforeseen delays or limited capacity can arise, so be prepared. Consider working JUST IN CASE and NOT JUST IN TIME.
UNDERSTAND THAT DELAYS AND EXTRA CHARGES MAY ARISE. Freight forwarders are trying their best to move goods on schedule without additional fees, but in this unstable period, delays and additional charges can occur out of forwarders’ control.
CONSIDER WHICH SHIPPING MODE IS BEST FOR YOU RIGHT NOW.During non-pandemic times, ocean freight is typically far cheaper but has a significant lead time. If your transit time demands it, ship by air and you’ll have confidence in the transit times.
BOOK NOW IF YOU CAN.to get goods moving as quickly as possible.
MAKE SURE THAT YOU HAVE THE MANPOWER TO ACCEPT YOUR GOODS UPON ARRIVAL. This will minimize delays.
