Container lines are set for another record year of revenue as supply chain difficulties show little sign of abating, much to the chagrin of almost everyone else.
Operationally, the shipping crisis has been a disaster for the box carriers that prop up world trade: Schedule compliance hit a record low of 32 percent in December, with ships arriving over a week later than planned on average, according to Sea-Intelligence, a consulting firm.
That has hurt importers and exporters, who are paying more than ever to wait longer for finished goods and parts, but the congestion has done wonders for the container shipping industry’s profitability and balance sheets.
The constant question plaguing the industry – and the global economy – is whether shipping disruption has peaked and how long the journey to something more functional will take.
Lars Jensen, chief executive of consultancy Vespucci Maritime, says the supply chain storm is about to peak — barring hiccups from coronavirus outbreaks in China to cybersecurity attacks on critical infrastructure.
“It seems to me we’re reaching the peak of congestion,” he said. “It’s hard to see it getting worse in North America and Europe.”
The Chinese New Year usually gives the industry some respite as factories shut down tooling and demand for moving goods across the oceans experiences a seasonal drop.
But Jeremy Nixon, chief executive of Ocean Network Express, one of the world’s largest container shipping companies, says airlines have not canceled or “blanked” any departures to ports this year, as they typically do in the weeks following the Lunar New Year.
The intention is to clear the backlog, he added, but even then the disruption could run at crisis levels for an extended period before improvement is felt.
“We see a continuation of the same for at least the next three months and the same in America for longer,” he said.
The fact that there is no recognizable trend towards normality is underpinned by a new indicator from the Swiss logistics group Kuehne + Nagel. It shows the total time that cargo ships are waiting to dock at major ports around the world, taking into account their size. Example: A ship that can carry 10,000 20ft boxes or equivalent (TEU) and waits three days counts as 30,000 TEU waiting days. On Thursday, the global total reached 12.5 million TEU waiting days.
“It’s normal when a container ship arrives at the terminal and doesn’t wait. At the moment it’s like waiting three or four hours for the gate after landing,” says Otto Schacht, Executive Vice President Sea Logistics at Kuehne + Nagel. “Normally there would be fewer than 1 million TEU waiting days.”
Ongoing turmoil on global trade routes is one factor fueling analyst predictions that airlines could make more profits than they can in 2021. Another factor is the spillover of higher spot market rates into the long-term freight contracts currently being negotiated.
According to Xeneta, an Oslo-based shipping data company, spot freight market prices for shipping a 40-foot container from Asia to Europe have increased to $14,700 from pre-pandemic $1,450. This increase has seen contracts covering quarterly, annual, and biennial freight volumes nearly triple to $9,300 from $3,400 last year.
Parash Jain, HSBC’s head of shipping, estimates that container shipping companies will post operating profit of $163 billion in 2022, up 8 percent year-on-year. This is “mainly driven by strong tailwinds in contract rates,” he says.
However, this week the IMF downgraded the economic outlook for the US and China amid multiple challenges including inflation and record debt levels, adding to uncertainty about the continued strength in consumer demand for goods. A deteriorating macroeconomic outlook would be a double-edged sword for cyclical industries.
“Slower demand is required for overall blockages to relax and be less stressed. But it’s also a warning sign,” said Peter Sand, an analyst at Xeneta.
“Initially it will be welcomed by many in the industry, but then we look to the second half of 2023 and 2024 when shippers will add many vessels to their network.”
Cartography by Steve Bernard