⊗

Earlier this month Ocean Network Express (ONE) reported its net profit for Q4 2022 was down 43% year-on-year to $2.77 bn and forecast that this year’s result would be down 4% at $14.73 bn. The president of Nippon Yusen Kaisha (NYK), lead ONE shareholder, Hitoshi Nagasawa says that ONE faces “a tidal wave in its business environment” and has “to take countermeasures.” It will reduce sailings and cut services while diverting ships around the Cape of Good Hope on their return legs from Europe to Asia to reduce idle time caused by blank sailing. Liner analysis firm Xeneta says that a “fundamental shift” is occurring in the ocean freight market in which the spread between contract and spot rates has narrowed considerably, reflecting the decline in spot demand. In fact their data show that contract rates on Asia – US west coast moved comparitively little in 2022, starting the year at $5,713 and ending it at $1,686, while spot rates fell from $8,860 to $1,686 over the same period. On the Asia-Europe headhaul, contract rates fell from $8,848 to $7,165 last year while spot fell from $14,439 to $2,289. Xeneta also says that carriers are blanking 55% of all sailings. This may be the main or indeed the only reason that containership freight rates have stabilised in 2023. The Freightos Baltic Global Container Freight Index stood at $2,214 on January 27, a marginal 1% lower than $2,246 at the end of 2022 but 77% lower than the $9,806 recorded a year earlier. On February 17 it stood at $1,991, some 10% lower again but the rate of decline has at least slowed. Transpacific shipping costs are still slumping, recording a 32% fall from $1,825 on January 27 to 1,239 on February 17, for the China-US West Coast route. However, the China–US East Coast route via Panama now costs around $2,633 comparted to $2,641 a month ago, only a 0.3% reduction. This may reflect liners’ preference for the all-water service to east coast ports which soaks up capacity even if it incurs Panama Canal fees. On the main headhaul Asia-North Europe route, freight rates ended January at around $3,400 but fell 21% throughout February to around $2,680 as of the 17th, reflecting lower exports during the Lunar New Year season, and giving up all of the gains made in January when rates improved 24% from $2,740 at the start of the year. Rates from Asia to the Mediterranean were up 9% in the week to February 17 at $3,441, which is also up 7.5% on the end of January. Why should rates to the Med rise when rates to North Europe fall? As the Med is relatively shallow, fewer of the larger ships controlled by the biggest lines can trade direct into Med ports, opening the region up for competition from smaller ships. On the Asia to North Europe trade, shipbroker Braemar counts about 150 vessels of 18,000+ teu out of a total 225 ships / 3.7m teu. It notes that only 25 vessels sized 18,000 TEU+ out of a total of 129 ships / 1.7 Mn TEU are deployed on the Asia-Med trade. Utilisation levels are thus easier to control on the Med dedicated services. The smaller ships that operate Asia-Med can be redeployed more easily than the big ships that trade Asia-North Europe, giving the lines more supply management option and better pricing capability on Asia-Med. In the Atlantic, westbound rates from North Europe to US east coast dipped back under the $5,000 per teu level in February to $4,780 on the 10th but recovered slightly to 5,925 by the 17th, some 14% down on the year-end number, $5,724. At the time of writing, the backhaul was $547 per teu, down 5% since the end of January and down 0.4% on the year-end figure. The market is essentially becalmed. At this point, it begins to feel like the bottom of the freight market has been reached, at least for now. The fleet will continue to grow in 2023 and for the next few years as more orders are placed. MSC and Maersk are famously untying their 2M alliance amid plentiful discussion as to the reasons. Some point to increasing attention from competition authorities in the US, EU and China. Analysis by Shipping Strategy of the concentration ratio in liner shipping suggests that the top three liner companies control 46.6% of the global liner fleet and orderbook as of January 2023, compared to 35.5% in 2017. However, they say that the Herfindal-Hirschman Index (HH), a common measure of market concentration, comes out at 993 points for liner shipping when calculated by individual liner company. A market with an HHI of below 1,500 is considered to be competitive, while a score of 2,500 or more is considered uncompetitive. On this basis, the liners have little to worry about. However, if the HHI is measured by alliance, then the three big alliances (2M, OCEAN, and THE Alliance) have a HHI of 2,142 when calculated on their owned and chartered teu. Splitting up 2M returns an HHI of 1,633, a more comforting figure for competition authorities. If Maersk and MSC both want to offer global coverage, they will probably have to build more ships, so the orderbook is likely to grow beyond its current 7.3m teu. Market concentration may be a concern for authorities, but the smaller competitors will worry about profitability with increased competition from the two largest liner firms.

Containers becalmed

Has the market hit rocket bottom? Splash Extra runs the numbers

⊗

To continue reading, please login below or subscribe here.

Splash

Read Next

Owners advised to cash in

Measuring shipping hubs

April 2024 Review

The on/off risk premium for tankers

Curse of the dry cargo optimist

Owners advised to cash in

Measuring shipping hubs

April 2024 Review

The on/off risk premium for tankers

Curse of the dry cargo optimist

Maritime CEO Forum Singapore

Maritime CEO Forum Monaco

Advertising

Press Releases

Splash

Splash Extra

Splash Special Reports