2024 has been marked by disruption in the Red Sea, which, ironically, has rescued the financial results of the shipping companies but hampered their efforts to improve their environmental balance sheets. Let us look at the year by highlighting 10 key phenomena.
The year 2024 promised nothing good for the shipping companies. In their first budget drafts, they predicted a sharp deterioration in their financial results, as freight rates per container in October 2012 plunged to below the four-figure mark. The situation was radically changed, however, by a geopolitical event. Following the attacks on it by Hamas on 7 October 2023, Israel began a full-blooded ripost. A few weeks later, on 17 November, Houthi rebels in Yemen succeeded in capturing the ro-ro vessel, Galaxy Leader, claiming that they were acting out of solidarity with Hamas. This event marked the start of a spectacular turnaround in ocean freight rate trends.
The Houthis' attacks on merchant ships in the Red Sea became more frequent, with the result that the shipping companies, particular those in the container sector, began re-routing their ships round the Cape of Good Hope. Clearly, this was neither anticipated nor desired. It did, however, help the shipping companies to restore their financial situations after a generally morose performance in 2023. Three years after Covid, an outside event had once again created upward pressure on freight rates for the benefit of carriers. ONE, which has a financial year running from 1 April to 31 March, demonstrated this very clearly. The Japanese group, which had been heading for a loss-making year, finally made a profit, thanks to the sharp increase in freight rates.
Source: Upply Freight Index
It should be said, however, that, while this was happening, shipping companies' operating costs also soared.
1/ New capacity comes into service smoothly
The forced, almost wholesale re-routing of container ships via the Cape of Good Hope, where they rediscovered how hard winter sailing conditions can be, served as an unexpected stroke of good fortune for the shipping companies, since it occurred just as the new capacity they had ordered during the euphoric post-Covid period was starting to come on to the market.
Roughly speaking, 2024 saw demand increase by around 7% and capacity by 3%, taking into account the longer route the ships were taking. At the same time, 2024 was marked by one of the lowest ship demolition levels in recent history.
2/ Freight rates reach unhoped for heights
The transpacific market remained balanced and active throughout 2024, with a bonus for the shipping companies at the end of the year. Just as rates were starting to be eroded in the final quarter after a period in which US west coast port recorded record cargo throughputs, the future Trump administration announced that it planned to increase import duties, leading to a round of early ordering by shippers, which enabled the decline in freight rates to be contained during the final part of the year.
In the Asia-Europe market, it was a different story. It became clear that the giant container carriers operating in this market were going to be difficult to fill for a long time to come. The shipping companies had to deal with weak European demand throughout the year. There was no real recovery during Golden Week and no restocking, since stocks were generally adequate. The low level of demand can be seen, moreover, in the financial results of European retailers, a number of which are in serious financial difficulty.
The use of longer routes was enough to maintain upward pressure on freight rates for a good part of 2024 but, from September on, a certain erosion became evident, even though the Cape of Good Hope route had by this time become the new norm in logistics chains and demand had remained low. In this situation, ships were not just taking the Cape route; they were doing so slowly, operating at average speeds of 10-12 knots.
3/ Environmental considerations pushed into second place
2024 was supposed to see shipping companies making good on their promises on emission controls, with measurable progress initially, thanks to their widespread use of less polluting fuel and the inclusion of shipping in the European Union's emission trading system (EU ETS) on 1 January. But then came the surprise. Instead of improving, the carbon footprint of a 40' container has increased by 20-40% on average year on year because of the need to use longer routes. This clearly made no sense at a time when the climate question had become an issue for wider society rather than just a political one, with every citizen able to see the impact of global warming for him or herself. It had also become an economic issue, as climate catastrophes cause billions of euros worth of damage (...)
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