Shipping in a post pandemic period emerges in a different world than the one we knew in 2020
 With so many factors at play on the world's trade lanes, from war and peace to catastrophic rate collapse only the brave and foolhardy venture forth with predictions on what's left of 2023 will bring.
Playing it safe is Lars Jensen, principal at Vespucci Maritime consultancy in Copenhagen, offers the pessimistic view. Optimism is found in the company of DP World chairman Sultan Ahmed Bin Sulayem, who told Bloomberg: “I don’t know that all that will happen in 2023. We understand that there are issues, but I think that business is capable of dealing with them We learned that the hard way during Covid and I think we can overcome.”
In this, Sultan Bin Sulayem is bucking established institutions. The World Bank slashed growth forecasts for most countries and regions and warned that new shocks could tip the economy into recession. Global gross domestic product will probably increase a mere 1.7 per cent this year, about half the pace of earlier forecasts and the third-worst performance in three decades.
Considering the optimistic view, Mr Jensen said: “The happy scenario is that this is only an inventory correction. The global recession that we’re in right now is short and shallow. The Russian war ends, inflation gets under control, and consumers get happy and optimistic. If that is the case, then we will see the economy pick up over the summer. There will be a surge of cargo during the normal peak season and the market will rectify.”
Not so, says Mr Jensen: “The pessimistic scenario is somewhat easier to swallow. In that scenario, the Russian war does not end; it takes inflation a lot longer to get under control, and the current recession might be deeper and longer than we expect. In this case, it will take consumer sentiment a lot longer to come back. In which case, the boom that we get in cargo demand following the inventory correction will not happen until the first quarter of 2024.”
The core driver of a massive decline in container volumes, he said “is inventory correction. But inventory corrections always hit container volumes hard. That means that the decline will continue until the owners have run down their inventories to a more satisfactory level. This is likely to happen sometime during the first quarter of 2023.”
Of course, this has resulted in rate collapse. Said Mr Jensen: “We have seen a massive roller coaster where rates from Asia to Europe went from US$14,000 per container down to less than $2,000. For the transpacific we have gone from $11,000 to $2,000. There are now spot rates for containers that are below pre-pandemic rates.”
But Sultan Bin Sulayem feels world trade and container volumes will get a boost from China’s reopening, helping to ease the economic situation, though there won’t be an immediate sharp upswing.
Instead, cargo shipments will build toward the fourth quarter as backlogs of export goods are addressed, he predicted.
His DP World continues to view the UK as a focus for investment, despite financial and political upheaval there. DP World is spending GBP300 million (US$366 million) on a developing a fourth berth at its London Gateway container hub.
The Dubai-based company separately published research highlighting changes to supply chains as companies increasingly shift manufacturing closer to home, a move known as on-shoring, to protect against disruption from geopolitical events and reduce costs.
To credit the Sultan's side of the argument are a number of pluses have occurred since the end of the pandemic panic. When the Covid scare hit in 2020, carrier service reliability “dropped off a cliff” at the onset of the pandemic in 2020. It reached a bottom in January 2022 when only 30 per cent of vessels arrived on time. Since then, we have seen a 57 per cent improvement in on-time performance, which is a substantial improvement over 2022. In January of 2022, delays were averaging eight days, we are falling below five days. One of the worst problems was the transpacific service bound for the west coast where fewer than 10 per cent of vessels arrived on time in January of 2022. That situation has improved massively over 2022.”
Mr Jensen lays great hope - perhaps too much - that once the impasse between the Pacific Maritime Association (PMA) and the International Longshore and Warehouse Union (ILWU) ends than the big boost US east coast ports have enjoyed gaining their historic volumes will come to an end.
While Sultan Bin Sulayem appears to be more Eurocentric in his concerns, he is also paying for a major feasibility study on putting in a second container terminal at the northern Pacific British Columbia Port of Prince Rupert - which has been a runaway success from less than two decades ago.
This is the DP World port Cosco and OOCL finds most convenient to get cargo from northern China into the US with Canadian National's complaint-free rail line through northern wilderness into Wisconsin and down to Chicago for trouble-free dispersal to the consumer-rich US Midwest.
Perhaps too much hope is invested a west coast docker union settlement to bring cargo back. Yes, cargo moved away from the west coast to the east coast because of congestion and that congestion is no longer a concern: “Most shippers would not want to move their cargo back to the west coast until a new union agreement is signed,” said Mr Jensen.
Not even then say those who have viewed what they think is a structural shift over the last dozen years, a trend that has only accelerated since the 2016 Panama Canal Expansion, when containership transit size increased from 4,500 TEU to 14,000 TEU.
Hats off to the railways that now run double-stacked 3.4-mile long trains carrying 2,400 TEU across the continental US. For a train, that is impressive. But compare that to an average size 10,000-TEU ship, not to mention the 24,000-TEUers now afloat. Then compare the fortunes one must pay railwaymen to run, manage, and prepare such trains to carry comparatively little against the pittance paid to seamen for carrying so much more.
Another great beneficiary of the coastal shift the Panama expansion have been the Gulf Coast ports with their record container volumes in 2022. Houston enjoyed a 14 per cent year-on-year container volume increase to 3.97 million TEU. The port also set an annual tonnage record, up 22 per cent to 55.1 million short tons.
Perhaps it is too soon to write off California as a gateway to America and relegate its ports as regional hubs serving itself, Nevada and Arizona, but it is fair to say that no larger proportion of transpacific shipping is waiting on bated breath for the PMA and the ILWU to settle their differences. |
