The slowdown in economic activity which began in 2022 continued in 2023. The reversal of the balance of power in favour of shippers had an immediate impact on freight rates and on the financial results of transport operators.
In 2023, world GDP growth continued to slow. According to the World Bank, it dipped to 2.6% from 3% in 2022 and 6.5% in 2021. The advanced economies were particularly affected. They saw their GDP growth fall from 5.5% in 2021, to 2.6% in 2022 and 1.5% in 2023. This was related to the situation in the Euro zone, where growth was down to just 0.5% in 2023. Conversely, the United States registered a growth rate of 2.5% in 2023, compared to 1.9% in 2022, and Japan a growth rate of 1.9% in 2023, compared to 1% in 2022. Among the emerging economies and developing markets, China recovered to show a growth rate of 5.2% in 2023, compared to 3% in 2022. The abandonment of its Zero Covid policy had a positive impact, even if it was not as great as expected. The property sector went through a serious crisis, which got even worse in late 2023, and the fall in householder confidence had a negative effect on consumption.
Inflation diminished but stayed at a high level, with a world average of 6.8%, according to the International Monetary Fund. This continued to weigh on householders' purchasing power and companies' investment capacities, which, in turn, affected demand.
World trade in goods and services remained virtually stable in 2023. The World Bank said that the 0.2% growth rate was the lowest recorded over the last 50 years, excluding periods of global recession. Against the background of a major slowdown in world industrial production, trade in goods contracted for most of the year, falling 1.9% over the year as a whole.
Freight rates down almost everywhere
Low demand for goods and services had an impact on demand for transport. In 2022, the leading world transport and logistics groups were able to show growth in their financial results, as the year as a whole was saved by a strong first half. This was not the case in 2023, when most registered a marked increase in their revenues but many saw their profit margins eroded.
In international transport, the deterioration in companies' financial results was the result of a supply and demand balance which had tipped back in favour of shippers.
- In 2023, the shipping companies began to take delivery of the new ships they had ordered during the Covid period. Despite the fact that cargo volumes were maintained and even showed a little growth, rates collapsed sharply because of overcapacity. They recovered rapidly at the end of the year due to disruptions in the Red Sea caused by attacks on merchant ships by Houthi rebels in Yemen, but not enough to maintain revenues and margins.
- Capacity was also the determining factor in the evolution of air freight rates in 2023. Because of a the recovery in passenger transport, the airlines expanded their flight schedules, increasing the cargo capacity available in the holds of the passenger airlines. The fall in freight rates was less violent than in the shipping sector but nevertheless amount to 10% or more on all routes.
The trend was different in the road freight industry, which generally reacts to the economic situation a few months after the international transport sector. However, if we look only at the second half of the year, we see a downward trend, both in France and in Europe. Over the year as a whole, freight rates rose slightly in Europe and remained stable on the French market. Looking at the detail, we see that freight rates continued to progress on the contract market but plummeted on the spot market, where there was a 3.4% fall in France and a 5.8% reduction in Europe over the year as a whole. In Europe, the reversal of the growth trend on the spot market took place during the first quarter of the year.
Unpredictable events on the increase
The balance between supply and demand remains much the major factor affecting the evolution of freight rates. The year 2023, nevertheless, showed an increase in the number of events which were foreseeable in themselves but the precise moment when they would occur was not. For supply chain managers, this is a factor which needs to be taken into account in their resilience planning.
- Geopolitical risk
Over just a few years, the geopolitical situation has become a key element among the different factors likely to significantly influence the market and the organisation of logistics chains. In 2023, the resurgence of the Israeli-Palestinian conflict led to disruption after Houthi rebels in Yemen began to attack merchant ships in the Red Sea. To avoid the danger zone, the shipping companies began to divert their ships in large numbers via the Cape of Good Hope, lengthening transit times and disorganising service schedules. After having begun to sell capacity at below cost price on certain routes, they were able to introduce rate increases and have continued to do so since then. This was an example of an increase in rates which was not related to demand. With the war in Ukraine still under way, we now have two areas of major armed conflict, to which supply chains are having to adapt.
This is not the only form of geopolitical risk, however. Another is posed by tensions over trade between the major powers, which are increasingly concerned about their sovereignty and strategic independence. The rivalry between China and the United States is an old affair, which began when the Trump administration imposed customs duties on certain Chinese products and was pursued by the Biden administration. In a new development, the European Union also opted for actions instead of words. In 2023, it opened an investigation into the subsidies allegedly granted by the Chinese authorities to electric car manufacturers. This resulted in July 2024 in the imposition of new customs duties. Another investigation is being carried out into the activities of Chinese wind turbine manufacturers. Measures of this kind can lead to changes in logistics chains to get round restrictions. At the same time, China generally riposts by taking action against Western exports, which can also affect the organisation of trade flows.
Apart from direct effects like these, geopolitical events can also affect the transport sector indirectly via the impact they can have supplies of basic products, particularly energy products. In 2022, when war broke out in Ukraine, transporters were faced with sharp increases in fuel prices. The situation was calmer on the fuel price front in 2023 but transporters costs in other area have still continued to increase.
- Climate risk
Also in the category of events virtually certain to happen without it being known exactly when is climate risk. A year no longer passes without a major climate event occurring. In 2023, shipping was affected, when the Panama Canal authority was forced to considerably reduce use of the canal because of the impact of drought on water levels. There are other examples. In August 2023, a landslide in France's Savoy region paralysed road and rail traffic between France and Italy, with rail traffic affected for a particularly long period. In April 2024, Dubai airport was forced to close its runways as a result of flooding. It is extremely difficult to predict when such events are likely to occur but the likelihood of them happening is tending to increase (...)
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CONTENTS
- The main trends for the transport and logistics market in 2023
- The main global transport and logistics groups
- Container shipping panorama
- Air freight panorama
- Road transport panorama
