Back to normal
The market is essentially back to what can be called normal. However, it is important to remember that "normal" within container shipping has never been the same as "stable". This is currently evident in the current market.
From a global perspective, cargo volumes fell by -3.2% in April, measured in TEU*Miles. This is obviously a decline but should be seen in a larger context. From September 2022 to February 2023, the market fell by double digits every month. The big declines in freight volumes ended in March and April. Moreover, freight volumes are again higher than in 2019, i.e., before the pandemic. Most major trade routes show improvement. The two biggest exceptions are Far East to the US and intra-Asia, which still show significant declines.
The problem in the Pacific is that, despite large declines in import volumes, the US has yet to see large declines in stock volumes. In contrast, cargo volumes in the Indian subcontinent, the Middle East and Africa have increased significantly, both for imports and exports.
In terms of congestion, the world is looking normal again. The latest April data shows an overall punctuality rate of 64%. That is still at a very low level, but unfortunately the usual level.
So far, spot rates on the main routes from Asia to northern Europe and the west coast of the US are essentially following normal seasonal fluctuations. Rates on the Atlantic to the US still show large declines every week, but this is part of a normalisation process as, despite months of decline, levels are still significantly above normal. Therefore, these declines should be expected to continue.
It highlights three key issues crucial to developments in the coming months: the US West Coast union agreement, the water shortage in Panama and slow shipping. As mentioned in the introduction, "normal" does not mean "stable".
US West Coast strikes
Conditions at US West Coast ports are unpredictable and change daily. This causes sudden closures of individual container terminals and consequent delays and congestion. If this situation persists, it is not possible to predict with any degree of reliability where and when any delays will occur.
The problem with this is that the agreement between the dockers' union, 'ILWU', and the container terminals' employers' association, 'PMA', expired a year ago and no new agreement has yet been reached. The most optimistic scenario is that an agreement is reached, and port operations can be called stable with immediate effect.
The most pessimistic scenario is a repeat of 2002, when the 'ILWU' and 'PMA' also failed to reach an agreement. This led to a complete closure of all West Coast terminals for 10 days. These ports handle about 40 per cent of all US cargo, so it is not physically possible for other ports to handle the extra pressure of a shutdown. To make matters worse, there is also pressure on the port workers' union in Canada, which handles Vancouver and Prince Rupert on the west coast, to join in support actions.
As these lines are being written, a strike is taking place at the Port of Seattle. Technically, this appears to be a 'lockout' by the employer and not a strike. The background are 'work-slow' actions or 'work-by-the-rules' (depending on your perspective) that caused the terminal to shut down completely. This is very similar to the situation in 2002, when a complete closure of as many as 10 days was an employer-organised 'lock-out' because the union organised 'work-slow' actions.
Panama Canal
The second element is the lack of water in the Panama Canal. This leads to restrictions on the draught of ships, reducing the amount of cargo each ship can carry. This particularly affects the trade route from Asia to the US east coast. The alternative is to send cargo through the Suez Canal. This is quite possible, but it significantly lengthens the shipping time. Currently, low water levels are predicted to continue at least into August. The water level is much lower than what would be expected seasonally. Such a low water level has only been seen recently in 2019, 2016 and 1998. In 2016 and 2019, vessels were generally a lot smaller than those used today, so the effect of the restriction is much greater now. Moreover, the low water levels are probably caused by the weather phenomenon 'El Niño', which could worsen the situation.
Slow steaming
The third element is slow steaming. The delivery of many new and large ships combined with stricter environmental requirements makes it attractive for shipping companies to sail slower, both to save fuel and to incorporate the new ships into the network. This can already be seen on the Asia-Europe route, where the 2M alliance has started sailing slower. It is to be expected that this will also happen with other shipping lines and on other routes. If shipping lines implement this on major transcontinental routes by 2023-24, they could absorb up to 7% of the global fleet this way.
Shippers should therefore generally expect operational instability in their Supply chains, especially to the US, rising prices for the use of the Panama Canal and general lengthening of transit times on long trade routes.
