Transportation & Logistics Analysis

Container shipping market prepares for the next storm

January 10 2023

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BAROMETER. Upply's data for the month of December confirms that the median rates charged by the container shipping industry have dropped sharply.

With demand for goods from China still very weak, the shipping companies have cancelled a large number of port calls. Blank sailings are expected to be widespread, moreover, until the Chinese New Year, which is due to start this year on 22 January. North-South markets are generally holding up better, however.

The shipping companies are starting to reveal the details of their 2023 operating programmes, which will see them following the example of The Alliance by deploying 24,000 TEU vessels in large numbers on Asia-Europe routes. This means that we can predict that port call cancellations can be expected to continue. These big new ships will only leave Asia when they have been fully loaded, since that is the logic on which they were built to operate.

Contract rates set to take a tumble

On the East-West spot market, the shipping companies are selling space at FAK rates which do not cover their operating costs. This silent rate collapse can be expected to attract greater attention when, inevitably, it starts to affect the contract market. This parallel movement is quite logical, whether it be for rate increases or reductions. What is astonishing is the speed at which it is taking place. It is causing surprise even among the most experienced negotiators, whether they are working for the shipping companies, the shippers or the forwarders. In this situation, trying to read the future and agree contracts does not make much sense.

This is a particularly bitter pill to swallow for forwarders. Budget forecasts now need to take account of the drastic and rapid reduction in revenues and profit margins on individual contracts. Some of the sector's assets are having to be quickly devalued after having gained value, no doubt excessively, during the first two years of the pandemic.

Shipping companies return to austerity mode

For the shipping companies, the time had come to bring the year to an end. They made exceptional profits in 2022 - double 2021 levels for the best performers - and have been able to pay their employees exceptional bonuses, ranging from four to 10 weeks of additional salary, depending on the company.

But the party is now over. In early 2023, the expiry of contracts signed when rates were at their highest levels will further reduce operating results, which have already been damaged by the collapse of spot rates out of Asia, from one week to another. The sudden turnaround in market trends can be expected to result in restructurings, moreover.

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Expert in Ocean shipping for 25 years, Jerome puts all his knowledge of the industry to contribution for Upply. Ship captain at heart, he has written the English-French Lexicon of Containerized Shipping (Paris: CELSE, 2001).
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