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Will the self-discipline of the shipping lines persist?

Now that the market is functioning normally again, the big question is how the freight prices will change in the coming months.

It appears that the continued construction and delivery of large new vessels, along with a calm peak season, will weaken the market, including spot prices. However, recent events seem to contradict this prediction.

Let's start with the most important aspect. The most likely scenario is that the shipping companies will tightly control their capacity, leading to higher rates. This will continue at least until the end of September, after which we can expect the usual seasonal decline in October.

Interpretation of market trends

At the moment, the market development is not very clear - it largely depends on the comparisons you make. Globally, new data from Container Trade Statistics has been released for the cargo loaded in June. These data showed that global demand (measured in TEU*Miles) has decreased by -0.2% compared to last year. This should be viewed in light of the fact that global demand measured this way had dropped by around -10% to -12% between September 2022 and February 2023. This means that the market is considerably stronger now than earlier this year. However, if you compare it to 2019, before the pandemic, the demand has increased by +2.5%. So, the reference point is important to keep in mind.

The market from Asia to North America showed a decline of -13% in June 2023 compared to the previous year. This marks the ninth consecutive month in which this market has experienced a decline ranging between -12% and -25%. If you only look at these numbers, it seems as though the market here has significantly worsened. However, it's important to consider the right context. The pandemic caused a massive surge in freight volumes, especially to the United States. This increase has now subsided. Freight volumes in the Pacific are +8% higher in June than before the pandemic. Between September 2022 and February 2023, volumes in the Pacific were below the 2019 levels, but that is clearly no longer the case now.

The development of the rates in the first half of 2023 

During the first half of 2023, spot rates on the Pacific to the US declined. This was clearly influenced by the weaker demand at the beginning of the year, and the rates even dropped below the 2019 levels. However, the situation changed in early July, and the rates began to rise again. Currently, these rates are significantly higher than what we observed in 2019. An important factor in this is the behavior of the shipping companies. During the spring of 2023, the shipping companies canceled relatively few sailings, leading to considerable overcapacity. However, starting from mid-June, the shipping companies began canceling many more sailings to better align their capacity with the actual demand in the market. Shortly after that, spot rates started to rise again.

The trade routes from Asia to Europe show differences in terms of demand. Freight volumes have grown by +12% in June compared to the previous year. This marks the fourth consecutive month of strong growth. However, on this route, the pandemic did not have the same positive impact as in the US. Instead, the demand for maritime freight was relatively weak last year. The high growth percentages at the moment are partly due to the comparison with the weak year of 2022. When compared to 2019 before the pandemic, the demand from Asia to Europe has only increased by 3%.

On this route, during the spring, the shipping companies also canceled relatively few sailings. As a result, the rates, especially to Northern Europe, dropped to levels below what we observed in 2019. Recently, we have also noticed that the shipping companies have increased their number of canceled sailings. However, this trend only became noticeable towards the end of July and has so far only led to a rate increase at the beginning of August.

Focus on occupancy, rates, and costs

As you can see above, the current market is quite uncertain. The relationship between freight volumes and available capacity is currently not favourable for the shipping companies, and the peak season isn't very strong. On the other hand, the increase in cancelled sailings has led to higher rates, first in the Pacific and seemingly in Europe as well.

This trend suggests that the shipping companies are not interested in a price war. Instead, each individual company seems to believe it's more advantageous for them to focus on increasing the occupancy rates of their ships by cancelling certain departures.

Several shipping companies have published their financial results for the second quarter of 2023. Despite significant drops in profits compared to 2022, the results are still considerably better than before the pandemic. Shipping companies have also communicated to their owners and investors that they are currently focused on reducing costs to achieve positive results for the entire year of 2023. This also indicates a lack of willingness for a price war.

Therefore, the conclusion is that despite the weak balance between supply and demand in the market, it's likely that rates will rise in August and September. However, this conclusion is primarily based on the behavior shipping companies are currently exhibiting in the market, specifically concerning the cancellation of sailings.

When October arrives and brings the seasonal decline in freight volumes, the pressure on the shipping companies will increase. At that point, they will likely have to further increase the number of canceled sailings to prevent a significant drop in rates.

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