Shipping industry grapples with capacity challenges, strong demand — Drewry

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Shipping industry grapple with capacity challenges, strong demand -- Drewry
  • Since early May the shipping industry has seen a return to capacity challenges, soaring spot freight rates, a surge in traffic volumes, and chronic port delays, according to Drewry
  • Four factors are behind the problems: stagnant capacity; very strong demand growth; shipper behavior; and operational disruption
  • Shippers are having issues securing capacity at agreed contract rates

The shipping industry has seen a return to capacity challenges, soaring spot freight rates, a surge in traffic volumes, and chronic port delays since early May, according to maritime research consultancy Drewry.

Four factors are behind the problems, Drewry noted in its latest market opinion. They are stagnant capacity; very strong demand growth; shipper behavior; and operational disruption.

It said shippers are having issues securing capacity at agreed contract rates.

Spot rates surged 74% between late April and early June, as shippers were asked to pay peak season surcharges.

But before that, the Drewry World Container Index, a weighed average of spot rates on eight East-West routes, reported that rates had declined steadily, from January’s $3,964/40ft container to $2,705 in late April. Carrier networks, Drewry said, are seemingly settling down after the start of the Red Sea attacks.

Drewry provided data showing that carriers have added numerous ships into their East-West services to make up for the longer routes presently used by almost all former Suez Canal-dependent carriers.

As an example, Drewry Container Forecaster data showed carriers in the Asia-North Europe route had increased their number of ships by 24% and total capacity by 17%, but only resulted in a mere 2% increase in monthly effective capacity due to the longer distances taken.

Thus, the one million TEU of ship capacity delivered in the first four months of 2024 made no difference to the monthly effective capacity provided to the market.

Drewry’s analysis considers the remaining capacity due to be delivered this year will finally “have an expansionary effect on effective capacity.”

It will not be a repeat of merely correcting the need for more ships after the diversions from the Red Sea, said Drewry.

Data for May 2024 is still limited, but what’s known is that transpacific volumes and volumes on several other routes are better than last year.

Data from the National Retail Federation shows US containerized imports last month were set to hit 2.1 million TEU, an 8% hike from May 2023’s 1.9 million TEU. In May 2022, during the pandemic, US imports were 2.4 million TEU, meaning the May 2024 figure is 12% lower than the previous troublesome volume peak.

A group of more than 100 multinationals who are members of the Drewry Benchmarking Club found that a proportion of global shippers are shipping early this year. While intended to guarantee shipments arrive on time, early shipping may cause capacity issues because capacity as well as infrastructures are stressed.

Drewry said they consider the market’s early peak season is only a short-term change. There will be a volume vacuum when peak volumes have been completed.

Post productivity has likewise taken a hit, with waiting times before berthing at high volume ports rising 43% between the third quarter of 2023 and the second quarter of 2024.

With all the disruptions, Drewry considers the duration of the Red Sea crisis affecting port congestion on supply. Different scenarios must be taken into account and negative factors are expected beyond the end of 2024.

For now, nobody knows when normal shipping operations will resume with any degree of certainty.

READ: Spot rates rise anew as container shipping market faces continuing challenges