Freight rates on most major trades started falling from early 2022 – with the Atlantic head haul trade from North Europe to North America as a notable exception. The cause is well known – it was initially a reversal back to normality as the capacity shortage was being resolved, and more recently the collapse in demand fueled further rate declines. 

But the question is when the bottom will be reached? Looking at the present data, there is an argument to be made that the market has indeed reached the bottom now.

All the various rate indices available roughly depict the same developments over the past month when looking at the overall market levels and not at trade specifics – a slowdown in the pace of decline and in some cases also modest increases. It should of course be noted that different indices show different nuances or segments of the markets. But from a broader perspective they all depict this pattern.

It should be noted that for especially the key Chinese export trades there is always a seasonal decline in rate levels following Chinese New Year and 2023 is no exception to this. But what is more interesting is that the path of decline does appear to basically match what could be expected from a seasonal perspective, with a trend towards less of a decline than usual

It should be noted that for especially the key Chinese export trades there is always a seasonal decline in rate levels following Chinese New Year and 2023 is no exception to this. But what is more interesting is that the path of decline does appear to basically match what could be expected from a seasonal perspective, with a trend towards less of a decline than usual.

This is particularly noteworthy as the supply/demand balance continues to deteriorate.

Using data from Container Trade Statistics it turns out that global demand measured in TEU*Miles declined -9.9% in January and February compared to same period last year. Note that January and February demand data are added as the varying nature of Chinese New Year skews the data such that each of these months individually cannot be seen in isolation.

At the same time the normalization of the supply chain continues to add capacity into the market. At the worst of the bottlenecks in January 2022 a full 13.8% of the global fleet capacity was unavailable due to delays. The latest data from Sea-Intelligence shows that in March 2023 this had declined to just 4.7%. Given that the corresponding fleet reduction in the month of March in the period from 2017 to 2019 was fluctuating between 2.2% and 3.9%, then a current fleet reduction of 4.7% brings the market very close to being in a state of pre-pandemic normality.

The bottom line is that the supply/demand balance continues to be very weak, as has been the case for the past six months. However, freight rate data also clearly indicates a levelling off at a bottom level. This can only be explained achieved through an increase in blank sailings by the carriers, which also indicate a reversal to pre-pandemic normality

The bottom line is that the supply/demand balance continues to be very weak, as has been the case for the past six months. However, freight rate data also clearly indicates a levelling off at a bottom level. This can only be explained achieved through an increase in blank sailings by the carriers, which also indicate a reversal to pre-pandemic normality. In the period 2017-2019 the carriers were getting better at managing capacity such that they would avoid sailing with too much overcapacity in weeks of weak demand. 

Hence, the data clearly points to the market having reached the bottom for now.

However, there is a key element of uncertainty related to the summer period.

The expectation is for the demand collapse to be driven by an inventory correction and that this might reach an end point and lead to an upturn again coinciding with peak season. This would cause an upwards pressure on rates to mitigate the downwards pressure stemming from a continuing stream of new vessels being delivered.

However, if this peak demand surge fails to materialize the pressure mounts on the carriers’ ability to manage the overcapacity and we might once more see a sustained decline in rate levels.

About Lars Jensen, CEO, Vespucci Maritime

Lars is a leading expert and thought leader in analyzing global container shipping markets. Lars has 19 years’ experience hereof the last nine within multiple companies he has founded, with the main focus as CEO of Vespucci Maritime.
 

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