Container numbers could rebound in 2023 with inventory replenishing

Date Added: 14 December 2022

Container numbers could rebound in 2023 with inventory replenishing

If the current decline in freight rates is due to inventory correction, then there could be a recovery in cargo volumes in 2023 as retailers strive to restock, says Lars Jensen, CEO of container shipping consultancy Vespucci Maritime

With our comprehensive portfolio of international container shipping services, Davies Turner, whilst we welcome this possibility, we also note that Jensen also stated that figures from Container Trade Statistics showed a dramatic downturn in container volumes in September.

Looking purely at the amount of teu lifted globally, September saw a near 9% drop compared to last year. In terms of teu miles, which better reflects the need for vessel capacity, demand had declined by 13%.

Jensen said, “This is a decline almost similar to the drop seen when the worst parts of the pandemic struck the market in 2020. That the market is suffering from a collapse in demand can be even more clearly seen compared to pre-pandemic levels. In this case, demand measured in teu has declined 2.6%, and demand measured in teu miles is now 7.6% lower than the level in 2019.”

This rapid decline in demand is caused by the onset of an inventory correction, mainly by North American and European importers.

Jensen elaborated, “Inventory corrections always have a severe impact on container volumes. If the situation was only one of an inventory correction, then this process is likely completed in early 2023. Following an inventory correction, there is always a subsequent surge in demand as importers then strive to return to normal operations. This is, for example, what we saw in the surge of demand in 2010 following the financial crisis or in the summer of 2002 following the inventory-driven recession in the US in 2001.”

However, if inflation and geopolitics extend the recession, 2023 will not offer any improvement, and a surge in cargo volumes could only appear in the lead-up to the Chinese New Year 2024.

As of now, with the weakness in cargo demand, liner operators will continue to blank large amounts of sailings in an effort to halt the slide in spot rates.

Over the past month, the market downturn has gathered further steam, and we are now entering the phase where the market in places is now beginning to go below pre-pandemic levels as the correction downwards from the historical high turns into a price war driving rates down.

From a shipper perspective, all of this could mean that negotiations for annual contract rates will become very favourable in the next few months, with potentially outstanding deals to be had in February/March 2023.

However, should the market correct itself to normal levels, such contracts are  unlikely to be useful as shippers might face carriers suddenly demanding various surcharges to accept the bookings. From a shipper perspective, this becomes a matter of risk management balancing the rate level itself against the likelihood that a given rate level is also likely to be honoured in terms of physical space by the carriers if the market tightens later in 2023.

For more information about Davies Turner’s ocean freight forwarding and logistics services, please contact ocean@daviesturner.co.uk or visit the relevant pages of this website.

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