Container market won’t stabilize until 2023, Drewry reports

by Krystyna Shchedrina

Before the Russian invasion of Ukraine and the new Covid-19 wave in China,the container shipping market had been expected to stabilize.

But now, research firm Drewry believes it will not level out until 2023. Carriers and their customers may have to struggle with at least another 12 months of lengthy delays and high freight rates.

Simon Heaney, Drewry’s senior manager of container research said that carriers’ ability to charge customers extremely high freight rates is dictated by the duration of supply chain bottlenecks, which remain highly unpredictable. Heaney shared the results of the company’s 1Q22 Container Forecaster report published in March at a webinar on April 26.

The report downgrades the outlook for global port handling, and saw significant increases in freight rates and carrier profits.

Carriers’ sweet spot

Heaney said in terms of profitability, carriers are concerned with the pandemic-related issues in China, whether the impact will mainly affect the factories, ports, or terminals.

“We have to say that Covid-19 has been exceptionally good for carrier profitability. From a logistics perspective, the primary side effect has been to create capacity shortages in virtually every link of the freight transportation network at a time of very high demand,” he said.

“Any new factory shutdowns or slowdowns in China spell bad news for carriers, as it will forcibly choke off demand for their services, potentially inadvertently correcting some of the capacity shortage problems that we’ve been experiencing for the last couple of years. The sweet spot for carriers is for logistics congestion to be bad, but not so bad that it interrupts the flow of goods out of the factory gates.”

Geopolitical risks

Heaney said there is a grouping of risks at play in the current global geopolitical situation, and the biggest uncertainty comes from not knowing how those various risks will interact. The Russia-Ukraine war and China’s zero-Covid policy are currently uppermost on the list of risks, with a high level of uncertainty.

“You could see it as this difference between betting on one horse to win a race versus a combination play where the odds of winning become exponentially longer,” he said.

The report says a prolonged war in Ukraine will put a drag on global economic growth and reduce container demand, thus container supply chain recovery. Combined geopolitics and pandemic-related risks will weaken consumer and business confidence, while fast-rising inflation might reduce goods consumption.

New congestion woes

However, China’s zero-Covid strategy could aggravate container deadlocks, reducing logistics capacity and consequently causing a decline in manufacturing and container shipments.

The data show that ports were heavily congested in 2021, and according to Heaney, things are not improving now. While larger ports deal with major issues, the problems trickle down to smaller ports as more ships are diverted in search of clear gateways. Previously medium and low volume ports are now becoming congested. The most recent example is the congestion spreading from Shanghai to Ningbo in China.

The report also notes that while the geopolitical risks have caused a sharp increase in fuel costs, which were passed on to consumers by carriers, the hot container market has done the same to the vessel charter market. Rates are covering these additional operating expenses.