The last couple of years have been a rollercoaster ride for the shipping industry; from skyrocketing rates in early 2022 to rock bottom prices this year. Will we see a recovery in 2024 from a container liners’ perspective? The general consensus is no, though optimism is not entirely absent. Meanwhile, there are a myriad of other influential factors that are set to come to the fore in 2024, including interest rates, environmental regulations and geopolitical uncertainty.
Here we provide you with the lowdown on what could happen in the sea freight market in 2024 – courtesy of numerous industry reports and insider opinions.
A continuation of low rates
The bad news for players in the sea freight industry is that few analysts believe a noticeable upturn in rates is on the cards.
The main reason for this is simply continued imbalance when it comes to supply and demand.
Among those to come to this conclusion are Container xChange, whose 2024 report forecasts “reduced demand and oversupply” that could potentially lead to “fierce competition, reduced profits, and possible mergers and acquisitions.”
BIMCO’s 2024 forecast also offers a similar projection for next year:
“Supply is forecasted to grow at an average annual rate of 8.4% between 2023 and 2025. Even at the best of times, ship demand would not see similar growth. Our forecast therefore predicts that the weakening that began in 2022 and took hold in 2023 will continue also in 2024 and 2025,” read the international shipping association’s report.
Moreover, the oversupply issue was highlighted by Simon Heaney, Senior Manager of Container Research at Drewry, who said during a recent Drewry podcast:
“As a baseline, Drewry is expecting demand to basically move sideways next year. We are forecasting only minor growth for global port throughput of around 2%. The fleet is going to grow about 3 times faster than that. You’ve got the bill due on the huge new building spending spree from the pandemic, and that’s going to be now the 3rd year running when fleet growth has exceeded demand. So that’s going to compound market over-capacity that we think will hit record lows next year. So this is all going to put very heavy downward pressure on freight rates.”
UPS have noted the issue too – citing figures in the Drewry Supply/Demand Index forecast for 2024:
“The Drewry Supply/Demand Index forecast for 2024 is 74.3, the lowest Drewry Supply/Demand Score ever reported. For reference, 100 is the benchmark for Market Equilibrium. Anything below 100 represents that supply is outpacing demand. This Supply/Demand environment will likely lead to very low-rate levels, an increase in carrier capacity management via blank sailings, slow steaming, adjusting sailing string availability and frequency, among other things, to try and buoy rates at a level that allows the carriers to remain profitable.”
Another gloomy forecast comes courtesy of ING bank, who believe that container liners are set to face a tough year:
“Sunken freight rates weigh heavily on the performance of container liners amid higher operational costs. But it won’t be easy to pass all of this on to clients in the current market. This means several container liners will face a challenging year with profitability already trending down. At the same time, this also makes trade more attractive to shippers compared to previous years and (CO2) surcharges won’t change that.”
A case of things can only get better?
Bucking this somewhat negative sentiment is Xeneta CEO Patrik Berglund, who has expressed some optimism that things can only get better:
“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,” said Berglund, as quoted in the 2024 Ocean Freight Shipping report.
However, Drewry’s Simon Heaney does not share the view that rates have bottomed out and can only go up. He maintains that rates will likely be even lower in 2024:
“Other analysts I’ve seen seem to be talking up the market and saying that carriers aren’t going to allow rates to fall further next year. But frankly, I just can’t see where their supporting evidence comes from. If carriers had such powers to be able to dictate rates, wouldn’t they be doing it already? So I’m going to stick with our prediction for lower rates next year,” said Heany, during Drewry’s December Freight Loop podcast.
The importance of interest rates
Photo: Trans.INFO
Another visible constant among the 2024 shipping forecast commentary is the influential role that interest rates are expected to have on demand.
Commenting on what 2024 will have in store for the freight market, Matt Elenjickal, founder and CEO of supply chain visibility provider FourKites, told Trans.INFO: “Softness in the freight market will continue for far longer than usual, likely throughout all of 2024, due to persistent, higher interest rates.”
The aforementioned BIMCO report also touched on this, adding:
“Slower demand growth could be seen in 2024 if central banks need to take interest rates even higher to control inflation. On the other hand, a lowering of interest rates starting in 2024 could result in an upside for 2025.”
Another player to highlight the interest rates issue was Container xChange, whose report said:
“Due to longer-term factors such as inflation, increased interest rates, and a structural shift of consumer spending patterns from goods to services, cautious consumer spending in 2023 is likely to extend into 2024. Households are expected to prioritise essentials over discretionary expenses, impacting demand for imported manufactured products.”
Blank sailings
Given the desperate need to stop rates from falling even further, or remaining at unsustainable levels, most industry experts believe that blank sailings and other mechanisms will have to be utilised by major container liners.
Xeneta CEO Patrik Berglund is one who believes that this is very much the case:
“Think about underlying weak macro-economics; 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,” said Berglund.
Container XChange’s report also forecasts that blank sailings shall increase in 2024 as market volatility persists.
This view is visible in BIMCO’s report as well:
“There have recently been signs that freight rates have gone so low that liner operators are prepared to act. Though we do not believe that liner operators will be able to significantly increase freight rates, we do believe that they will be significantly more focused on adjusting their operated fleet to actual demand.”
Simon Heaney’s comments echoed this opinion too:
“I’m pretty sure we are going to see lines pull hard on all of the capacity levers that are available to them. And that comes in the form of greater demolitions, more idling, pushing back new build deliveries, slower steaming, definitely, and blank sailings. So good carriers will give shippers plenty of notice. But disruption should definitely be expected.”
However, crucially, Heany added:
“So yes, carriers will be reducing supply. But far too much is required to get anywhere close to a balanced market.”
Geopolitics and supply chain diversification
The importance of the geopolitical climate is something that is well documented in the aforementioned reports too.
Container XChange notes that geopolitical uncertainties, such as conflicts in Ukraine, Taiwan, and Israel, are impacting trade routes. Meanwhile, the organisation adds that the expansion of BRICS countries is introducing new dynamics. Additionally, BIMCO states that companies are diversifying away from China, driven by ongoing trade tensions, rising labour costs, and concerns about supply chain resilience.
Peter Sand, Chief Analyst at Xeneta, also warns that political turmoil and conflict could have a significant impact next year:
“The geopolitical wild card could come into play. Political turmoil and wars are ongoing and we are now seeing conflict and heightened tension across the Middle East. Further conflicts in other parts of the world, for example Taiwan, cannot be ruled out and may yield significant and lasting impacts on shipping,” said Sand, in Xeneta’s 2024 Ocean Freight Shipping report.
Moreover, in its 2024 forecast, ING bank referred to how the geopolitical climate will only serve to accelerate the supply chain diversification that has been seen in recent years:
“We also note that the diversification of imports by advanced markets is a trend that is unlikely to reverse in 2024. Advanced markets have been gradually broadening their imports over recent years as geopolitical risks and supply chain problems have caused businesses to hedge their bets. This has mainly resulted in a lowering of the direct share of imports from China to the US but is not yet so prevalent in Europe. With geopolitical risks remaining significant in 2024, expectations remain for this trend to continue, with other Asian markets set to gain market share,” said the Dutch Bank, in its 2024 forecast.
On the other hand, during the aforementioned podcast, Drewry’s Simon Heaney once again offered a cautious view on this trend, claiming that supply chain diversification plans will take longer to come to fruition than some may expect:
“For all the talk of nearshoring and friend-shoring, I think the idea that you could suddenly unpick a very complex global value chain seems a little bit far-fetched to me. I do agree though, that the current political situation is making the world much more unpredictable. So that makes my job harder in terms of forecasting, and certainly increases the likelihood for disruptive events that could change the course of the market, even if only briefly.”
Environmental regulations
Photo: Cmacgm13, CC BY-SA 4.0, via Wikimedia Commons
Finally, the impact of environmental regulations like ETS has received a fair amount of attention.
According to Xeneta CEO Patrik Berglund, the new environmental regulations being introduced in 2024 are “an additional complication for carriers in what is an already challenging market.”
“These regulations will prohibit some carriers from utilising all of their capacity because their vessels are not environmentally-friendly enough and will go out of the market,” said Berglund.
These changes didn’t pass by Simon Heaney either. As he puts it, there is a lot of regulatory change coming next year. He notes that besides ETS, ships will get their first grades from the carbon intensity indicator scheme. Moreover, he stresses how in April, lines are going to lose their consortia block exemption that they’ve had for a number of years.
Will this shake up the market though? In Heany’s opinion, the status-quo will not materially change:
“It’s quite a lot happening all at once, but in our view, even together, none of it should materially change the status quo. So from my perspective as a market watcher, some of the things I’ll be interested in following are whether or not the market downturn is going to provoke any shift in the integrator strategies of lines such as Maersk and CMA CGM that have gone all in. I suspect that they won’t reverse course, but you might start to see some curtailment in investment,” concluded Heany.
Photo by Kelly