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Seaborne reefer trade is expected to contract for the second consecutive year
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A decline of 0.5% in 2023 is seen for seaborne reefer cargo following a 0.8% contraction in 2022
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Climate impact, weakened Chinese demand, and geopolitical tensions contribute to the short-term outlook, affecting various sectors including meat, fish, seafood, and fruits
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Transit restrictions on the Panama Canal, due to a drought, reduce vessel capacity, impacting exports of perishables from the West Coast of South America
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Panama Canal surcharges should be anticipated and the EU Emissions Trading System coming into effect in January will introduce uncertainty and increased costs
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Despite the current decline in cargo demand, reefer container freight rates show resilience compared to the broader container shipping market, with a forecast for further declines in reefer rates next year
The seaborne reefer trade is expected to contract for the second year in a row as the final quarter of the year unfolds, according to the latest Drewry’s Reefer Shipping Forecaster report.
A combination of factors, including climate impacts, weakened Chinese demand, and geopolitical tensions, has led to a forecasted decline of 0.5% year-on-year in total seaborne reefer cargoes for 2023. It follows last year’s contraction of 0.8%, marking two consecutive years of declining trade.
In the meat sector, which held the title of largest commodity by volume in the third quarter of 2023, strong pork exports from the United States and Brazil have been offset by declines in beef exports and continued weak demand from China, the report said.
The fish and seafood sector also faced challenges, with marine heat waves in the Atlantic impacting aquatic ecosystems and contributing to consistently low catches throughout the year, it added.
The fruit sector, a crucial component of seaborne reefer trade, has seen fewer exports from major producing regions. The impact of El Niño on the weather has made it harder to grow high-quality fruits, causing a drop in shipments of various fruits like apples, unusual fruits, melons, berries, and even bananas. The banana trade, specifically, has faced challenges due to rising costs and low demand, causing a stagnation in sea exports this year.
One significant factor in this scenario is the state of the Panama Canal, according to the report. A drought has reduced transits and drafts. Transit slots at 24 per day are expected to drop to 18 by February 1, 2024. This poses challenges for liner operators with booked slots, translating to less cargo capacity and the need to keep strict schedules to make their slot.
READ: Panama Canal restrictions may hit Christmas stocks
Charter or seasonal services might have to take a longer route through the Magellan Straits or Cape Horn, leading to higher costs and extended travel times for cargo owners. As a precaution, cargo owners should be ready for potential surcharges from container shipping lines related to the Panama Canal and check for guaranteed slots before making commitments, the report cautioned.
Adding to the complexity, the EU Emissions Trading System is set to take effect in January 2024, introducing uncertainty and increased costs. Anticipated volatility in carbon allowance prices are likely to affect emissions surcharges. Carriers will try to cover their costs, and there may be potential issues in transparency.
Even though there is less demand for cargo, reefer container freight rates are holding up better than the overall container shipping market. Drewry’s Global Reefer Container Freight Rate Index went down by 34% in the third quarter of 2023 compared to the previous year.
The decline is far milder than the index for dry containers, which dropped by a sharper 74% year-on-year. This pattern is likely to continue, and there are predictions for more decreases in reefer container freight rates next year.
Looking forward, there is hope for seaborne reefer trade to start growing again. Despite the current challenges, the forecast suggests the industry will bounce back in the coming year and beyond. This growth will be fueled by the increasing global population, creating a steady demand with an average annual growth rate of 3.2% until 2027.
