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Category: Global Supply Chain

Global Supply Chain News: Low Rates, High Costs May Push Container Carriers Back to Losses


More Ships being Idled as Shipping Demand Falls


Nov. 8, 2022
SCDigest Editorial Staff

It’s been boon times for ocean container carriers since shortly after the start of the COVID pandemic, with mind-boggling rate hikes and stratospheric profits.

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The idled containership fleet has now exceeded 1 million TEU, and is likely to go higher as carriers prepare to temporarily take capacity off-line.  

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But for months now spot rates have taken a deep dive, and some shippers have demanded discounts from carriers for their contact rates as a result too.

This week, web site reported that spot rates from Asia to Europe and to the West Coast on course to fall below pre-pandemic levels before the end of the year.

The carriers also have another problem: their operating costs, notably for fuel and labor, are significantly higher than they were in 2019.

That could push many carriers into losses in the first quarter of next year.

As usual, falling demand is the key factor, just as soaring volumes plus smart capacity management by carriers were behind the record rates.

Maersk recently reported, for example, that its Q3 container volumes fell 7.6% versus the same quarter in 2022. The port of Los Angeles said last week its volumes were down 26% versus the same week in 2020-2021.

The Loadstar’s sources say they are seeing rates to ship a 40-foot container from China of $3,000 or even less, and that with that almost no one is shipping under contract.

The Loadstar also quotes a non-vessel operating common carrier (NVOCC) as saying “We are receiving silly offers from Chinese forwarders almost daily, with those rates apparently valid with all the main carriers.”

(See More Below)







What can carriers do? Reducing capacity by voiding sailings doesn’t seem to be working now as it did in 2020, as export volumes coming out of China are falling fast.

So carriers are taking supply reductions even further by laying up more ships.

The idled containership fleet has now exceeded 1 million TEU, and is likely to go higher as carriers prepare to temporarily take capacity off-line.

The analysts at Alphaliner recently wrote that “Weakening cargo demand and declining freight rates have prompted carriers to cull some sailings and even temporarily suspend a number of services on major east-west trade lanes.”

On its Q3 earnings call referenced above, CEO Soren Skou said the carrier’s strategy is to “take out capacity to meet demand.”

What are your thoughts on the state of the container shipping sector? Let us know your thoughts at the Feedback section below.

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