Drewry's latest outlook for the consolidation market states that, The prospects for the consolidation market to reach equilibrium in the coming years are becoming increasingly bleak, It is expected that the entire industry will lose $15 billion next year.
Simon Heaney, Senior Research Manager of Drewry Container Transportation, gave a "pessimistic" outlook for the container transportation industry, predicting that the global average freight rate (calculated by combining spot and long-term freight) will decrease by 60% this year and 33% by 2024.
He added, "This is not just a challenge for 2024, it's hard to find many optimistic signs after 2024
Simon Heaney stated that liner companies will face a "severe challenge of maintaining freight rates above costs". The more severe the cash loss, the more extreme the response of the shipping company, so we expect it to have an impact
Low freight rates reflect an extreme disconnect between supply and demand - the Drewry global supply and demand index is set to hit a historic low, with transportation capacity expected to increase by 6.4% next year, while demand is expected to only increase by 2%. This will be the third consecutive year in which capacity growth exceeds cargo throughput growth.
Simon Heaney alleges that "liner companies have done too late in capacity management". Although the only feasible option to restore balance is still to dismantle ships, generally slow sailing, delay new ship delivery speed, idle more ships, and cancel more voyages, he concludes that this will "Too large to achieve" .
He pointed out that even with the most optimistic expectations, "the market still cannot approach equilibrium," and oversupply of transportation capacity will always be a characteristic of the market. Many liner companies are updating their fleets to comply with environmental regulations, but they have "not phased out old ships quickly enough", which is the reason for the pressure.
It is estimated that the dismantling volume this year is only 115000 TEUs, and it is expected to soar significantly to 600000 TEUs next year. The sailing speed may decrease by another 1% to 13.8 knots, but even so, the situation will still be very severe.
Overall, as freight rates continue to decline, it is expected that the pre interest and tax profit (EBIT) of liner companies will reach $20 billion in 2023, but they will lose $15 billion next year.
Simon Heaney stated that he now expects the EU to terminate the Consortium Block Exemption Regulation (CBER) next year, which will not be as important as initially expected, and the impact will be minimal except for short-term legal uncertainty. He believes that the main threats are geopolitical issues and the risk of 'black swans', as well as possible extreme climate events.
Previously, whether in 2009 or 2020, any decline in port throughput could quickly recover. However, Drewry stated that "we will not see this situation in the coming years" and compared 2022-2023 to the "long-term sequelae" of the new shipbuilding delivery boom.
The Drewry report concludes that "the container market is currently in an awkward position, with global economic activity expanding while global cargo volume is declining." The unnatural surge in demand from 2020 to 2021 has led to a contraction in consumer spending, and even if the global economy is moving forward, there will be a huge gap in the container market that will last for a long time, The multiplier effect of Gross Domestic Product (GDP) on container loading has disappeared, dropping below zero in 2022, and it is expected to be at the same level in 2023.