Ocean Freight Update: Capacity Keeps Increasing, More Sustainable Newbuilds, Rain Alleviates Panama Canal, and more…

What’s happening on and around our oceans?

This is our weekly ocean freight update, highlighting interesting news and background articles we came across this week. We focus on general ocean freight news, innovation, and sustainability.

General ocean freight news

Never before have there been so many newbuilds being delivered this year and next. Many of those ships have been ordered by the shipping companies to expand existing capacity, but according to Alphaliner, some are for replacing existing ships.

…Jan Tiedemann, head analyst at Alphaliner, believes a very different picture might play out in the coming years as a deluge of new vessels enter service.

“The thing that makes me at least a bit hopeful is that, for the first time, maybe in history, or in the history of container shipping, we’re coming towards a point where some of the orderbook might not be for growth, but actually for replacement,” 

Tiedemann notes that global fleet capacity is now around 26m teu, up from six million teu just 20 years ago. “For the last 20 years the global container fleet has grown by roughly 1 million teu every year,” a rate he believes is unsustainable in the coming years given the previous success of containerisation penetration and the lack of new markets to target.

Container shipping now ‘maxed out’, claims leading shipping analyst

Consumer spending is expected to pick up in the second half of 2023. This would mean an increase in demand for shipping as well. Another trend is the lengthening of trade routes, which also increases demand.

Global trade slipped into contraction at the end of 2022, following the rationalisation of piled-up inventories and the economic and industrial stagnation in the US and Europe. Global trade has also entered a period of lower growth due to geopolitical concerns, protectionism, and supply chain reconsiderations. Growth is therefore set to remain low into 2024 and this means that shipping tonnage is also under pressure. Nevertheless, we still expect a stronger second half of 2023 once consumer spending on goods picks up alongside a normalisation of spending patterns, reduced inventories and wage growth.

Container shipping will leave the extraordinary pandemic years behind in 2023. A combination of high demand for consumer goods and multiple supply interruptions sent rates and profits to unprecedented levels over the last two years. But this is changing rapidly now. With a mix of demand adjustment (and a mild contraction in 2023), resolved port congestion and a range of newly-ordered vessels coming online, elevated spot rates have plummeted as the market power shifts to the buyer side. After two exceptionally profitable years, container liners are financially resilient though.

Global shipping outlook: It’s all about capacity as the tide turns

At the moment, it is challenging for shipping companies on multiple fronts:

Container lines are facing a triple whammy: Freight rates are weak — below breakeven in some trades — and show no signs of rising. New ships are flooding the market. And vessel leases that container lines booked at historically high rates during the boom have yet to expire. Some leases run through 2024 or 2025.

What levers can ocean carriers pull to stop the bleeding?

They do not seem to be able to raise freight rates. Demand is too low and carriers are not canceling enough sailings. They want the new ships being delivered (whether they’re owned or leased) because they benefit bottom lines via much higher fuel efficiency. Aristides Pittas, CEO of ship lessor Euroseas (NASDAQ: ESEA), said during the recent Marine Money Week conference that his company’s newbuildings “burn 40% less fuel oil than similar ships built 10 years ago.”

Container shipping trilemma: Weak rates, new ships, pricey charters

As a result of slowing demand, the charter market is also cooling down.

There are now clear signs that the weak demand for ocean freight is beginning to impact the hitherto insulated containership charter market.

While daily hire rates for larger charter ships remain stable, mainly because of the lack of tonnage coming off hire, brokers are reporting that there is a build-up of open tonnage in the feeder sizes, resulting in downward pressure on charter rates for smaller vessels.

Steam goes out of the charter market as carriers look to off-hire ships

Other interesting ocean freight news:

Sustainability & Innovation

The shipping world was once again confronted with the effects of climate change, when the Panama Canal had to lower the draft for ships transiting the canal. For a while it looked like further restrictions were necessary, but shipping companies got lucky…

The Panama Canal will postpone depth restrictions that were going to affect larger ships crossing the main waterway after a rainfall, according to Reuters.

In fact, the Panama Canal had published measures, scheduled to take effect on 25 June and 9 July, requiring ships to sail at higher depths.

Reuters said Neo-Panamax ships can continue to sail at the previous depth limit of 13.41 m and Panamax ships can move at 12.04 m.

Much-needed rain postpones depth restrictions on Panama Canal

Both on water and on land, the shipping industry is trying to bring down its carbon footprint. Shipbuilders are innovating, shipping companies are upgrading their vessels, and ports are also greening their operations.

DP World is accelerating its adoption of renewable energy at the Port of Santos in Brazil making another step towards carbon neutrality by 2040.

The initial phase of the electrification process includes the replacement of diesel fuel with electric power for the Santos terminal’s Rubber Tyred Gantry (RTGs) container handling cranes. A total of 22 diesel-fueled units will be electrified, by the end of next year, with an investment of over US$16.2 million.

DP World proceeds with electrification projects in Brazil

Recently The Loadstar has reported on several drives to diversify supply chains from China, with climate issues taking a back seat to concern over the Xi Jinping administration’s handling of Covid-19, as well as security concerns over components  such as semiconductors. Carmakers and even mobile phone OEMs are making plans to move their operations to India or Mexico, and meanwhile, the German government fought off an attempt by Cosco to purchase a controlling stake in a terminal at the Port of Hamburg.

Chinese operators warned: raise green ambitions or see investors back off

Capt. Valcica envisions a future where seafarers embrace cutting-edge green technologies, optimize vessel operations for energy efficiency, and may be able spend more time working onshore as they collaborate with remote teams through digital communication channels. He suggests, “smart automation and digitalization will enable more streamlined operations,” but points out that the seafarer of tomorrow will face new challenges, including cybersecurity risks and technical complexities. 

The evolving role of the seafarer in a more digitalized and sustainable shipping industry

The global shipping industry can reduce emissions by nearly 50% by the end of the decade, according to a new study by CE Delft. These findings come as the International Maritime Organization (IMO) is about to reach an agreement on climate targets to reduce greenhouse gas emissions from ships in July.

The analysis shows that ships can achieve 36-47% emissions reduction by 2030 compared to 2008 levels by deploying 5-10% zero or near-zero emission fuels, wind-assist technologies, and by “climate optimising” the speed of ships.

Shipping shown path to halve emissions this decade

Other interesting stories on sustainability and innovation:

That’s all for this week

About the author:

Martijn Graat

Martijn is Zergratran’s Head of Content. He writes about the latest trends and innovations in logistics and anything related to Zergratran