Speaking at TOC Asia, Alan Murphy, CEO and Founder of Sea-Intelligence, said the container market was returning to normal but questioned whether this was the pre-pandemic normal in 2019, a relatively good year for container shipping excluding 2020 – 2022, or a much worse scenario 5–6 years ago.

Murphy noted that spot container rates have risen to sky-high levels due to a combination of strong consumer demand and about 15% of global capacity lost to congestion at ports and in supply chains.

What is happening now is that consumer spending on durable goods has dropped to a more reasonable level and this is driven by a rather severe drop in container throughput in September.

The capacity loss rate, normally around 2%, is now down to around 8% and Sea-Intel expects it to reach a normal level in Q1 next year. Murphy notes a near-perfect correlation between lost capacity and spot rates, with a 95% correlation with Drewry's World Container Index (WCI), down 77% from its peak.

For long-term contract rates, the rate of decline is slower but looking at data from Xeneta, Murphy commented: “For contracts signed in last three months we are seeing contracts are being renegotiated at lower rates.”

Meanwhile, shipping lines are facing a new capacity load of around 2.4 million TEU over the next few years, the largest amount ever in nominal terms and much higher than the previous high about 1.5 million TEUs.

One key difference from the past is that the shipping lines now have huge amounts of cash and it is recorded that the carriers made the same amount of money in the first six months of 2022 as they did in the 10 years before the pandemic.

Murphy sees two scenarios playing out – a controlled decline with staffing starting now or a price war. “What I personally think is much more likely is headed into we’re in for a rate war,” he said, an 80% chance of a freight rate war.

The result could be a protracted price war as the carriers involved have more money.

In addition, shippers expecting prolonged low prices have been warned of the possibility of a repeat of 2009-2010.

 

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Source: Phaata.com (According to SeatradeMaritimes)

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