Containers

Container shipping’s tricky 2023 outlook

Liner shipping will make just 5% of 2022’s mega profits, and up to 25% of the massive container orderbook will likely be postponed. These are the headline predictions in a unique survey carried by Splash today looking at how the container sector navigates its way out of its greatest ever boom.

Both Drewry’s World Container Index and the Shanghai Containerized Freight Index (SCFI) have halted their plunges at the cusp of the new year, however, experts are warning carriers will need to brace for some very challenging conditions in the coming months.

“Carriers are starting the year with a weak hand, and I expect they would turn in losses before the year is over,” said Hua Joo Tan, the founder of Asian consultancy Linerlytica.

More bullish is John McCown, whose Blue Alpha Capital quarterly liner profit reports have become essential reading during box shipping’s record earnings run since 2020.

25% of the massive container orderbook will likely be postponed


McCown anticipates that the carriers will be profitable in 2023 with a net income to revenue margin in double digits but with aggregate quarterly profit levels below the Q4 level recorded in 2022.

More aggressive capacity management will be a central factor as lines doggedly avoid red ink this year, McCown suggested.

“There are certainly a lot of moving parts and we’re at a fulcrum point right now, but my broad view is that the container shipping sector will be performing better than most think and there has been a fundamental change in sector DNA,” McCown told Splash.

UK consultants Drewry estimate liner shipping made record combined operational profits of $290bn last year, something that will slide to just $15bn in 2023, with shippers enjoying more affordable freight rates and better service reliability.

“2023 will not be just about lower carrier profits,” said Philip Damas, the managing director of Drewry Supply Chain Advisors. Among the other key trends to watch, according to Drewry, are the easing of port congestion and associated operational delays around the world and the return of overcapacity in container shipping.

For Peter Sand, chief analyst at freight rate platform Xeneta, 2023 looks certain to be the second year in a row of falling container volumes, and subsequently the main characteristic of the market to look out for will be the idle fleet. This includes both hot and cold lay-ups in addition to blank sailings.

Making headlines this year for sure, Xeneta expects that 25% of the scheduled orderbook will be postponed, while no more than 10% is expected to be cancelled – and that would probably be options not called rather than outright and expensive cancellings.

We’re at a fulcrum point right now

Sand reckoned carriers with heavy exposure to long-term contracts rather than spot business will remain profitable this year. Carriers with a full exposure to the spot market are already losing money and will continue to do so for many months to come, he warned.

On top of the worrying amount of new tonnage due to enter the container markers this year and next, HSBC sees downside risks to demand in 2023 as inflation bites into household savings, which the bank said this week could likely trigger another round of price competition.

Scrapping is likely to ramp up over the course of the year, according to Daniel Richards, associate director at UK consultancy Maritime Strategies International (MSI). MSI expects scrapping will reach a year-end total of around 270,000 teu, before increasing even more in subsequent years. Xeneta, meanwhile, is forecasting up to 400,000 teu worth of ships will be torched this year, still some way short of the record 696,000 teu scrapped in 2016.

Attention is now turning to contract rates, with TPM, the industry’s leading business event coming up shortly.

Contract rates are collapsing on most routes, based on early data seen by Drewry.

“Despite a current Tic Tac Toe environment, BCOs will still not be able to play their best hands depending only on the flop. 2023’s longer term ocean freight market requires the skills of a chess grandmaster to successfully check their opponent, the ocean vendors,” advised Steve Ferreira, the CEO of New York-based shipper advisory Ocean Audit.

“The pendulum has clearly swung back towards shippers,” said Richards from MSI, predicting that some shippers will simply hold off from extensive contract commitments unless the rates they are offered end up close to pre-pandemic levels.

“It will likely be a frustrating contracting season where neither side feels it has gotten all it wanted, but also where worst-case scenarios were avoided,” Richards predicted.

For all the very latest container shipping news and market trends check our Splash’s dedicated liner coverage here.

Sam Chambers

Starting out with the Informa Group in 2000 in Hong Kong, Sam Chambers became editor of Maritime Asia magazine as well as East Asia Editor for the world’s oldest newspaper, Lloyd’s List. In 2005 he pursued a freelance career and wrote for a variety of titles including taking on the role of Asia Editor at Seatrade magazine and China correspondent for Supply Chain Asia. His work has also appeared in The Economist, The New York Times, The Sunday Times and The International Herald Tribune.

Comments

  1. Drewry’s $290B EBIT number for 2022 looks way too high. I reach that conclusion by starting with actual nine-month net income and adding my 4Q estimate along with estimated annual interest and taxes for an overall EBIT result of $217B. That reconciliation points to the $290B number being $73B or 34% too high. In another news article on 10/20/22, Drewry’s then current EBIT estimates were shown as $275B for 2022 and $100B for 2023. That indicates in the 11 weeks since that article, Drewry has increased its estimate for 2022 by $15B at the same time it has decreased its estimate for 2023 by $2023. That change for 2022 is very inconsistent with actual pricing trends over the same period. The data suggests that the $290B is simply a bad number. I continue to view net income as the most relevant line to focus on in any review of profits in a capital-intensive industry such as container shipping. A first step in any credible forecast is to start with an accurate assessment of the latest actual results.

    John D. McCown

  2. The information is.vwry important for shippers all over the world.to brace up.to the challenging situations ahead and make alternative plans and necessary.adjustment in their operations in 2023.

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