CONTAINER SHIPPING OUTLOOK 2023

Smooth sailing after a storm?

while simultaneously dealing with rising interest rates. Naturally, the hike in interest rates is causing trepidation buyers. Early data for 2023 shows us that container flows have fallen in Jan/Feb year-on-year, showing the inventoryliquidation cycle remains an issue.

As ever, it’s helpful to read the market by looking into spot rates, and if we look at the cost of moving a box from China to the US (West Coast) we can see something quite shocking. In 2022, fees were around US$16,000, in 2023, they’re closer to $1,000 for a forty-foot equivalent unit, according to the Freightos Baltic Exchange index.

Geopolitical Instability

The biggest influence on global trade flows, arguably even global politics, at present comes in the form of Vladimir Putin’s invasion of Ukraine. Commentators in the field of geopolitics and political strategy seem to have formed something of a consensus that President Putin expected a swift victory in Ukraine, after which, a new normal could be created in the region.

However, what Putin has found is a stubborn resistance, which has led to a significant loss of life, as well as major support for Ukraine stemming from the West. Given Russia provides (or did provide) masses of energy to Europe, we’ve seen energy prices spiralling out of control, thereby rocking global markets, and leading us headlong into a global recession throughout 2023.

Despite the dark impending clouds, this may not be as long-term, or damaging an issue as one may think. In its outlook for 2023, Lloyd’s List stated that: [While it] may sound callous… if the past few years have proved anything, it is that those glitches in the global system routinely throw up lucrative opportunities for maritime businesses.”

Continuing: “Parking the prospects for 2023 for just a moment, it is worth reminding ourselves that the shipping industry has once again earned a record amount of money in 2022.

“Earnings may not have seen the historic peaks, but they have been consistently high. Granted, market conditions are generally expected to deteriorate in 2023, but a low orderbook with a short runway supports a mediumterm outlook that is — in historical terms — not too bad.”

Key Themes for 2023 Sustainability

The International Maritime Organization (IMO) has recently announced its ‘World Maritime Theme’ for 2023 as 'MARPOL at 50 – Our commitment goes on'. According to the IMO, “the theme reflects the organization's long history of protecting the environment from the impact of shipping via a robust regulatory framework and emphasizes its ongoing commitment to this important work. The theme 'MARPOL at 50 – Our commitment goes on' also spotlights the International Convention for the Prevention of Pollution from Ships (MARPOL), which covers prevention of pollution of the marine environment by ships from operational or accidental causes.”

With global warming taking centrestage in global issues, with clear and obvious ramifications for all, it’s no surprise that the IMO is furthering its aims with regard to sustainability. The IMO has also already released a new set of rules called ‘IMO 2023’. IMO 2023 aims to reduce shipping carbon emissions by 40% by 2030, and 70% by 2050, when compared to 2008 levels. The IMO 2023 directive took effect on January 1, 2023, meaning shipping lines have significant work to do to stay in line with the directive.

Elastic Logistics

A blend of new challenges as well as obstacles as old as the supply chain itself is causing retailers to reassess their current shipping strategies. It may be something of a worn out – and arguably incorrect – cliché, but in a ‘conservative’ industry like container shipping, new blood has entered the sector with ambitious new aims.

Hence, instead of relying on tried and tested methods, key players and shipping businesses have become warmer to the notion of adaptable strategies that meet challenges in real time over longer-term strategies that are far less agile. Maggie Barnet, COO of e-commerce fulfilment company ShipHero recently spoke about how the key to successfully manage challenges is to remain flexible.

She said: “The positive thing about the last two years is that companies have gotten really good at predicting supply chain disruptions. Brands don’t need to reinvent their shipping strategies, but they may need to adjust accordingly. Staying flexible is key to surviving the ups and downs of the pandemic.

She added: “Companies should be able to scale operations and resources depending on consumer demand and product shortages. 2023 will be all about elastic logistics. Companies should also consider investing in AI and cloud technologies, as these are the best ways to predict consumer demand and have total visibility into the supply chain.”

Integrated Logistics

On the back of the record profits in 2021 and 2022 due to spiralling freight rates, the extent of liner profitability can be gauged from the fact that various estimates have put the aggregate industry profits for the last two years as being more than the combined profits over the past two decades. The super profits have left carriers flush with funds, even after placing orders for new vessels and equipment. Carriers then are deploying the surplus profits to boost their resiliency and create alternate revenue streams intended to help them sustain when the container market eventually stabilises.

With this in mind, carriers are moving away from a sole focus on container shipping and starting to look into logistics and freight forwarding, and even air and rail transport, as well as the more predictable venture into the port side of operations. These additional investments in ports, terminals, air capacity, train operators and logistics assets result from a conscious strategy to pivot away from a cyclical industry and develop a more robust organisation operating across the entire supply chain.

While the above is an understandable aim, there may be monopolisation issues to contend with should one of the major carriers be highly successful in forming a complete, in-house supply chain. Still, that aside, it would be interesting for the industry to see how smoothly a chain can function if all elements are working together.

Outlook

The container shipping sector has enjoyed an unprecedented boom during the pandemic but 2023 will see a difficult combination of sluggish demand and sharply rising fleet growth. This is contextualised by an uncertain geopolitical landscape, sustainability concerns and demands, as well as new strategies that could change how we approach the shipping sector.

After the turbulence of recent years, the air cargo industry has been set on stabilising itself towards a new normal. However, as tends to be the case in life, such a task is never simple, with a raft of unknowns challenging the sector, alongside the more consistent challenges the industry usually faces.

Before we cover these, a quick update on the present market. The International Air Transport Association (IATA) has recently released its first data for 2023, finding that global air cargo markets are showing that air cargo demand declined as economic headwinds persist.

Global demand, measured in cargo tonne-kilometres (CTKs*), fell 14.9% compared to January 2022 (-16.2% for international operations). Capacity (measured in available cargo tonnekilometres, ACTK) was up 3.9% compared to January 2022. This was the first yearon-year growth in capacity since October 2022.

International cargo capacity increased by 1.4% compared to January 2022. The uptick in ACTKs reflects the strong recovery of belly capacity in passenger airline markets offsetting a decline in international capacity offered by dedicated freighters. Several factors in the operating environment should be noted: The global new export orders component of the manufacturing PMI, a leading indicator of cargo demand, increased in January for the first time since October 2022. For major economies, new export orders are growing, and in China and the US, PMI levels are close to the critical 50-mark indicating that demand for manufactured goods from the world’s two largest economies is stabilizing.

Global goods trade decreased by 3.0% in December, this was the second monthly decline in a row. The Consumer Price Index for G7 countries decreased from 7.4% in November to 6.7% in January. Inflation in producer (input) prices reduced by 2.2 percentage points to 9.6% in December.

Willie Walsh, IATA’s Director General, gave his views on this: “With January cargo demand down 14.9% and capacity up 3.9%, 2023 began under some challenging business conditions. That was accompanied by persistent uncertainties, including war in Ukraine, inflation, and labour shortages. But there is solid ground for some cautious optimism about air cargo. Yields remain higher than pre-pandemic. And China’s much faster-than-expected shift from its zero COVID policy is stabilizing production conditions in air cargo’s largest source market. That will give