The Wall Street Journal (WSJ) reported on Friday (30th) that over the past two years, supply chains have been disrupted, vessel capacity has been limited, and container freight rates have been staggeringly high. But next year will be different, at least not from the perspective of the world’s shipping giants. In addition, a price war between the shipping giants may start next year.
The report pointed out that the container spot rate began to decline at the beginning of this year, and it is not much higher than the level before the new crown epidemic, and will accelerate the decline in the second half of next year. The World Container Index (WCI), compiled by London-based maritime consultancy Drewry, is down 77% so far this year and could fall further, signaling record earnings for shipping lines Coming to an end.
Drewry forecasts that next year will witness the largest increase in new ship capacity ever, with around 2.5 million TEU (20-foot-units) added, barring some delivery delays. Shipping lines will struggle to cope with a slump in global trade and a surge in vessel supply unless they can form alliances to reduce fleets, sell excess capacity and convince customers to sign long-term contracts.
Barclays (Barclays) analyst Alexia Dogani believes that shipping prices will not stabilize until the global economy improves, the current destocking cycle is over, and consumer behavior returns to normal after the epidemic.
Shipping companies may have to negotiate with customers to maintain the long-term contract value before then, but the negotiations may be very difficult. As the container spot rate falls, the estimated contract rate will also fall.
Investors in Danish shipping giant Maersk (Maersk), whose shares have fallen 32 percent this year, are likely to know this, lagging far behind the Copenhagen benchmark. The company moves about one-fifth of the world’s containers.
Shipping lines are likely to weather even worse storms next year, and while ongoing geopolitical uncertainty gives them some leverage with customers, there’s no doubt the boom is over for now.