Signs of market recovery
In the past month, we saw new figures indicating that the container market may have bottomed out. However, we see two major anomalies worth to notice: There is one major trade route that is still not showing a recovery in cargo volumes, and the new ships being delivered in the coming period will also have an effect.
When looking at freight rate trends, it is important to note that the available rate indexes reflect different elements of the current market. The spot rate indexes reflect developments on the 'sharp side' of the market and are therefore volatile and short on time. Looking at these indexes from Asia to Europe, we see that they reached a low in late March and have been rising slightly since then. The same goes for the Pacific from Asia to the US west coast from mid-April (but not to the US east coast). In the Atlantic, figures continue to fall, but relatively slowly given the high levels compared to those before the pandemic.
It is normal for spot prices from Asia to fall in the aftermath of the Chinese New Year. Remarkably in spring 2023, the fall from Asia to northern Europe is less than would be expected on a purely seasonal basis, and the initial rise has occurred a month earlier than normal. This indicates incipient underlying strength in the market.
This indication is supported by the latest figures from 'Container Trade Statistics', which cover all container cargo loaded in March. Globally, demand (measured in TEU-miles) fell 2.7%, but this was a marked improvement on the previous six months, when the monthly decline was between 10% and 12%. In the past eight months, demand, (measured in TEU miles), was below the level we saw in 2019 just before the pandemic. In March, freight volumes again exceeded 2019 levels in a sign of a turnaround in the market.
Most major trade routes showed growth in March compared to the previous six months' decline, most clearly from Asia to Europe with growth of 8% compared to last year and growth from Asia to South and Central America of 28% over the same period. The improvement in spot prices to northern Europe in particular therefore seems to be based on a much firmer market.
No recovery from Asia yet
The exception is the Pacific Ocean from Asia to North America. Compared to last year, cargo volumes fell 21% in March, and this was the seventh consecutive month with a drop of more than 20%. At the same time, US economic indicators show that inventory levels are still not declining. In itself, it is positive that inventories are not increasing, but after seven months of large declines in imports of physical goods, it is worrying that inventories are not decreasing.
The global improvement, with the Pacific being the exception, is slowly starting to show in shipping lines' operations. On the Asia-Europe route, the number of cancelled sailings has decreased over the past month, indicating a slight increase in vessel utilization.
Global market activity is almost back to normal. Global average punctuality was 63% in the month of March. This is obviously not a great performance, but it is close to what is actually normal. In the period from 2017 to 2019, just before the pandemic, it fluctuated between 66% and 76% globally in the month of March, which should therefore be seen as an interval indicating a normal market.
New ships are coming
If you look a little further ahead, there is a higher volume of ships on their way from the shipyards. Looking at order books alone, this equates to capacity growth of 10% in 2023 and another 10%
First, ships will be scrapped. In the last two years, virtually no ships have been scrapped, so we have to subtract a few percent from the capacity approach.
Secondly, it is quite possible that the ships will sail slightly slower, thus using more capacity. There have been arguments in the press that the ships already sail as slowly as possible, but it should also be noted that several times in recent decades it was said that the ships could not sail slower, then this happened when there were problems with overcapacity.
Third, there is the prospect of larger ships gradually being used on larger trade routes. Not so much from Asia to Europe, but on other larger long-distance routes. When larger ships are gradually introduced, they will spend more time in port to load and unload. Thus, to maintain a weekly schedule, more ships will eventually have to be deployed on the same route.
However, it must be said that these effects will not in themselves prevent some overcapacity in 2023 and 2024, but the negative impact on freight rates may not be as great as one would think at first glance.
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