Container shipping companies are hopeful for rates to rebound in 2024 as volatility in the market continues even as the year ends.
The declining demand for ocean freight combined with increasing capacity, is driving maritime container shipping rates down far below their 2021 peaks.
Maersk, the world’s second-largest ocean carrier, said it will cut nearly 10,000 jobs in 2023 as a cost-saving mechanism.
The company’s capital expenditures will be slashed both this year and next year and share buybacks could be halted next year.
“I’m certainly concerned about the next 24-36 months because I think we are going to see a downturn. I do expect that the market is going to remain under significant pressure,” Rolf Habben Jansen, chief executive officer of Hapag-Lloyd AG, said.
He expressed optimism about the volume of shipments and predicted that the company will see reasonable growth, both in the fourth quarter but also in 2024.
However, as Americans continue to spend and businesses flee Europe to the US due to the sanctions on Russia backfire, coupled with subsidies from the US’s Inflation Reduction Act, US imports have surged 33 percent from their recent low in February.
October’s inbound volumes were the highest since August 2022. Meanwhile, Asia-Europe spot rates are already at their lowest levels in years due to weak demand and record-breaking capacity growth.
P. Creuset, a Goldman Sachs analyst, believed that freight rates and earnings must continue to decline until there’s enough financial pressure to phase out expensive tonnage.
New vessel deliveries are running at 1 percent of the global fleet per month with very little slippage, idling and scrapping remain low, and November active capacity is set to increase.
In January and May 2023, a warning was issued that a container shipping downturn was coming due to global business activity slowing, companies racing to reduce inventories at warehouses due to overstocking during the pandemic years and trade wars between the US and China.
Meanwhile, shipping companies are looking back on the year as a troubled time due to declining demand for ocean freight combined with increasing capacity to drive maritime container shipping rates down far below their pandemic peaks, according to a report from Xeneta.
As the market continues to be volatile, Xeneta has also listed six variables that could determine the future of the shipping business and shipping liners in 2024.
The report said that business trends in 2024 will be driven by 2.5 percent growth in demand, and 6.5 percent growth in supply while spot rates will remain volatile throughout the year.
Meanwhile, carriers will aim to increase spot rates through smart capacity management and General Rate Increases (GRI), long-term rates will be steadier than seen during 2023, and spot rates will hover just below or above long-term rates throughout 2024.
While those predictions play out, rates could have another volatile year, Patrik Berglund, CEO of Xeneta, said in the report.
“What we can say is that the current rates are unsustainable. So, the question is when they will go up, not if they will go up. From what we know, there’s little room to go further down. What’s most likely is they stay a little longer around this level, maybe go a little bit down, but they will, for sure, go back up,” Berglund said.
The report further stated that carriers will also have to monitor many other variables, including new environmental regulations being introduced in 2024 that could complicate an already challenging market.
“These regulations will prohibit some carriers from using all of their capacity because their vessels are not environmentally friendly enough and will go out of the market. As a result, we will continue to see slow-steaming and blank sailing.
“Think about underlying weak macro-economic; inflation rates, cost of living, interest rates and reduced global consumption. On top of that, you have wider political turmoil and wars. There are still some heavy dark skies on the horizon and that could change the equation. But I still believe shipping lines will adjust to whatever demand is out there because anything else does not make sense,” Berglund said.