Inactive tonnage as a percentage of the overall container fleet is now at its highest level in two years, according to Alphaliner, the latest in a wide-ranging series of data points highlighting the sector’s swift change in fortunes.
The proportion of inactive tonnage still remains very low historically, Alphaliner pointed out in its latest weekly report, but has shown consecutive monthly growth since August.
Liner CEOs are still digesting the latest forecasts from the International Monetary Fund (IMF), which is now projecting that a third of the global economy will contract in 2022 or 2023, with the US, EU, and Chinese economies forecast to continue to stall.
“In short, the worst is yet to come, and for many people 2023 will feel like a recession,” the IMF warned.
The worst is yet to come, and for many people 2023 will feel like a recession
“The demand side outlook continues to weaken on war risk, skyrocketing energy costs, political instability and general inflation, all of which are now impacting overall consumer spending and thus trade volumes,” the latest ocean freight market report from DHL stated.
Discussing the fast deterioration of the cargo environment, Alphaliner reported that carriers are trying hard to stem this volume contraction and the freight rate collapse by blanking sailings, removing capacity, shutting down or merging services and reducing speed, but this has been so far insufficient to reverse the trend.
“Reports of ships sailing at only 70-80% capacity on main trade routes are showing the extent of the problem and point to further unavoidable capacity reductions further down the road,” Alphaliner reported in its latest weekly report.
“[B]ased on the current weak fundamentals, geopolitical instability and poor macroeconomics, the market will remain bearish until at least early 2023, with an unprecedented cost of living crisis slowly pushing the world into a global recession,” Alphaliner suggested.
According to Judah Levine, head of research at Freightos, ocean spot rates have continued their decline on the major ex-Asia lanes this week on falling demand, but port congestion on the US east coast and at many major European hubs may be slowing the speed of the rate fall on those lanes somewhat despite falling volumes.
Asset values are sliding too, albeit not as precipitously as charter rates. The 4,400 teu segment has seen values slip to around $50m for 10-year old ships and to $45m for 15-year old vessels, according to a new container shipping report from Jefferies. These are down from theirs peaks above $90m in early 2022, but remain well-above the $10m to $15m average value during the 10 years prior to 2021.
“We see asset prices beginning to reflect a more normal earnings environment in 2023 as current charters expire and owners weigh scrapping decisions,” analysts at Jefferies noted.
Scrapping will need to accelerate to handle the record volume of new tonnage entering the sector from next year.
New capacity delivery, which has been below 5% each year since 2019, will smash records in the coming two years.
“This new wave of new capacity delivery could not have come at a worse time as the shipment volume has started to soften since mid 2022,” a new report from Linerlytica warned.
