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Supply will outpace demand in container shipping in both 2024 and 2025, according to international shipping organisation Bimco, and this will exert further pressure on freight and charter rates.

Ocean carriers have already pushed back deliveries of some ultra-large vessels into next year, and are likely to try to re-negotiate with yards to slide further newbuilding delivery dates as far back as possible.

In its Q4 market overview and outlook, Bimco says following estimated growth of 7% this year, the container fleet is expected to expand by 8.8% next year to more than 30m teu, and by another 6.4% in 2025.

“Even at the best of times, ship demand would not see similar growth,” it says.

In contrast to the containership capacity supply explosion, Bimco expects flat-to-1% growth in global container volumes this year, and modest growth of between 3% and 4% in both 2024 and 2025.

The only bright spots in the demand outlook are for the secondary trades.

“Despite only contributing about 23% of global import volumes, the current growth drivers in the container market are the Indian subcontinent and Middle East, South and Central America and sub-Saharan Africa regions,” says Bimco.

Meanwhile, the shipping organisation said it had seen some postponements of newbuild delivery dates.

“Our forecast for fleet growth in 2023 has been adjusted downwards, as it appears that more ships planned for delivery in 2023 than expected have been delayed until 2024,” said Bimco. It said cellular container fleet exceeding 30m teu by late 2024 would represent a huge 26% expansion of capacity since December 2020.

However, an expected ramping-up of scrapping in the sector in 2024 and 2025, due to tougher environmental regulations and falling time charter rates, could prove a mitigating factor.

Containership scrapping will struggle to reach 200,000 teu this year, but analysts are suggesting this could be doubled or even trebled next year, as shipowners retire elderly tonnage as daily hire rates are expected to fall to sub-economic levels.

Moreover, a further slowing of service speeds will soak up tonnage, as will diversions from the Panama Canal via the longer Suez Canal or Cape of Good Hope routes, as well as other geopolitical issues and the occasional ‘black swan’ event.

Nevertheless, as it stands, Bimco’s outlook for the liner industry remains bleak, unless carriers are prepared to take radical action in terms of capacity management strategies over and above blanking programmes.

“Our forecast predicts that the weakening that began in 2022, and took hold in 2023, will continue in 2024 and 2025,” says Bimco.

“However, there have recently been signs that freight rates have gone so low that liner operators are prepared to act. Though we do not believe liner operators will be able to significantly increase freight rates, we do believe they will be significantly more focused on adjusting their operated fleet to actual demand.”

Source:

Wackett, M. (2023b, December 4). Bleak outlook for liner shipping – unless carriers take drastic action. The Loadstar. https://theloadstar.com/bleak-outlook-for-liner-shipping-unless-carriers-take-drastic-action/

Persistent drought-driven restrictions on container ships traversing the Panama Canal are in the cards for at least the next several years, barring a dramatic upswing in rainfall. Those restrictions, which effectively reduce the maximum stowage capacity of larger vessels and limit the overall number of transits, will likely force carriers to alter networks as they try to push higher costs onto shippers.

The canal first began restricting daily transits in July and said it will ease them when water levels rise. Panama’s rainy season is historically in April and May.

But the soonest the Panama Canal Authority says it could see significant relief is 2028, and that’s if the government of Panama course-corrects after years of underinvestment and supports $2 billion in investment to build a new reservoir and more pipelines.

Container lines, including Ocean Network Express (ONE), are urging the government to act. Current and past canal administrators, in consultation with the US Army Corps of Engineers, have stressed the need for investment to protect the water basin to avoid underutilization of the waterway.

“We greatly appreciate the current weather conditions are a factor,” ONE CEO Jeremy Nixon wrote in a letter to Panamanian President Laurentino Cortizo Cohen on Oct. 30. “However, we also understand that no significant projects have gone ahead in Panama to increase the fresh water supply to the locks from other catchments areas.”

ONE’s neo-Panamax ships — those with capacities ranging from 10,000 to 15,000 TEUs that can transit the canal thanks to the new set of locks that opened in 2016 — have experienced delays and restricted stowage, Nixon told Cohen in the letter, a copy of which was obtained by the Journal of Commerce.

Draft limits are reducing the capacity of container ships transiting the canal by approximately 20% across all size classes, said Michael Kristiansen, president of Panama-based consultancy CK Americas. Larger vessels lose approximately 350 TEUs of capacity for each foot of draft lost; with draft now limited to 44 feet, down from the designed 50 feet, larger ships must forgo about 2,100 TEUs of otherwise usable space.

Some carriers have been forced to offload cargo at terminals at either end of the canal, and then rail those boxes across the isthmus. Container lines have been generally spared from long transit delays, however, thanks to pre-scheduled transit appointments.

Rethinking routing

Concerns over the restrictions — and shipper complaints over a lack of service reliability — have reached such a level that ONE is considering other routings via the Suez Canal, Nixon said in his letter. To avoid the draft limits and get US imports from Asia to the Midwest, Zim Integrated Shipping Services this month added a call at the Port of Lázaro Cardenas in Mexico, while CMA CGM has been making more ad-hoc calls to the Pacific Coast port.

With Panama Canal transit windows pre-booked, containers lines aren’t diverting services, nor are they shelling out millions of dollars to skip the line, similar to what some operators of liquefied natural gas (LNG) carriers have done, according to Bloomberg. The lack of scheduled service, however, is squeezing seasonal refrigerated (reefer) operators that charter vessels on an ad-hoc basis and must wait in line similar to the bulk carriers and tankers.

Nixon also raised concern about the reduction in daily transit slots for neo-Panamax vessels, with the number falling to five starting Jan. 1 compared with the 10 available just three months ago. Kristiansen said the canal handles an average of 4.5 neo-Panamax transits daily, raising concerns that some services will be squeezed unless enough neo-Panamax LNG and bulk carriers divert away from the waterway.

ONE, similar to other container lines, invested heavily in larger vessels that were able to move through the larger set of locks, which was completed in 2016 at a cost of $5.25 billion. Ports along the US East and Gulf coasts similarly invested billions of dollars to be able to handle the larger ships, which has helped fuel a two-decade shift of trans-Pacific imports away from the West Coast.

Political solutions

But Panamanian politicians seem more focused on copper than water, amid the largest protests in three decades over mining concessions. Rising political instability and social unrest frame the upcoming national election in May.

Ultimately, the government must either expand the canal authority’s geographic remit so it can push through water management projects or limit current restrictions that prevent it from building new reservoirs. Canal officials hope construction contracts currently in the offing can be awarded by the end of 2024, with work completed in 2028.

Depending on the severity of this drought, and potentially others to come, carriers may do as ONE warned: shift service away from the canal. Deploying smaller vessels is another option.

Carriers could also adjust services to send more cargo from South Asia through the Suez Canal, though it would add distance for some origins, Kristiansen said. The US East Coast is approximately 2,200 nautical miles farther from Shanghai via the Suez Canal than via a Panama Canal routing.

Yet another option would be for carriers to change some Asia–North America services to so-called around-the-world strings, transiting the Suez on the backhaul from North America to Asia, Kristiansen said. That would require an additional deployment of ships in the string to maintain weekly service frequency. Although less than ideal, it would slightly mitigate industry-wide overcapacity.

Whether carriers can pass on the costs in a depressed trans-Pacific market, as CMA CGM is attempting to do, is another matter. Citing transit limits for neo-Panamax ships and higher tolls, CMA CGM said in a Nov. 21 advisory it will begin applying a $150-per-TEU surcharge for shipments moving through the Panama Canal.

Source:

Szakonyi, M. (2023, November 21). Carriers weigh options as Panama Canal restrictions become a fact of life. Journal of Commerce. https://www.joc.com/article/carriers-weigh-options-panama-canal-restrictions-become-fact-life_20231121.html