With general outlook for shipping remaining somewhat mixed this year and cargo growth looking a bit weak, capacity is the one factor we should all keep an eye out for.
The container market is bracing for a flood in capacity even though the total orders for new tankers appears to be limited in comparison. Coupled with longer trade routes and recovered oil demand, the market continues to remain tight, inevitably, resulting in higher long-term rates.
Following the industrial and economic recession in both the US and EU, as well as the rationalisation of surplus inventories, global trade started slipping into contraction by the end of 2022, entering a low-growth period following supply chain reconsiderations, protectionism, and geopolitical concerns.
Going into 2024, growth is expected to stay low which puts shipping tonnage under pressure. However, a stronger second half of 2023 is expected as consumer spending will pick up right alongside more regular spending patterns, wage growth, and reduced inventories.
Over the decades, the shipping container market has become accustomed to cyclicality, experiencing an impressive peak in both 2021 and 2022, with record-high rates as well as profits.
However, consumers started reducing spending on higher goods, amid the global economy struggling to recover from rapid rises in rates and an inflation shock – the demand slowdown was intense. As a consequence, spot rates on major trade lanes dropped rapidly, although the subsequent investment wave in new vessels will become very noticeable in the coming years.
Now, let’s fast-forward to March 2023 – the prosperous years in the shipping container market leading up to 2023 witnessed a surge in orders for new large container vessels. In March, 27% of the installed fleet capacity was to be delivered between 2023 and 2025.
Even though capacity on order is significantly lower compared to peak levels prior to the 2008 financial crisis, the fleet itself is a lot bigger and therefore shipping containers will need to fill that space. But let’s not forget that the trend of globalisation of supply chains has come to an end, so it may be a lot more challenging this time around.
With that said, experts pointed out that the shipping container sector is vastly more consolidated today than it has been in the last 20 years alone – the three container line alliances can operate in the EU until April 25, 2024; that’s when the current block exemption in the UK and EU expires.
It would be very interesting to see how the shipping market plays out for the rest of this year and next year, but if you’re in the market for buying high-quality containers, Willbox has you covered across the UK: 0800 023 5060.