Ocean Freight Update: Expected Rate Dowturn, Capacity Growing, Decarbonization, Automated Ships and more…

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. For the past week, we have led with updates on the situation at the Panama Canal, but there was no substantial change to the situation last week. Transits are still down almost 25%, currently standing at 31, down from 40, with no change in sight.

Ocean Freight News

Compared to ten years ago, cargo owners are paying more to get their cargo shipped across the oceans. At the same time, rates are very low, and the end of these low rates is not in sight. Global demand is down, caused by inflation, growing cost of resources, and geopolitical unrest. US container imports are still on the rise, though. At the same time, the total capacity floating around our oceans keeps growing, but the peak may have been reached. Shipping companies are ordering even more vessels, and an increasing number are powered by alternative fuels—more on that in the Sustainability section below.

The average cost of freight in the 2020s so far has exceeded that in the 2010s with Clarksons breaking it down by cargo whereby the shipping of iron ore has been 18% more expensive in the decade to date, grain 27%, LPG 34%, crude (by aframax) up by 32% while container shipping, which has enjoyed record conditions for much of the 2020s, has seen spot rates some 2 to 3.5 the average of the 2010s.

Shipping costs in the 2020s proving expensive for cargo owners

“It is clear the demand does not support the carriers’ deployment of capacity in their current networks,” he said. “It is also clear that the continuing delivery of more new vessels will only make this worse.

“Unless the carriers change behaviour, we could be facing a much more severe downturn in rates in the coming months,” he warned.

More ocean rate gloom as analyst warns of further ‘severe downturn’

“As of August 2023, global demand has a shortfall of -6.8% compared to a growth pattern which would have followed global GDP growth. This is not good for the carriers, which are in the process of taking delivery of a sizeable orderbook,” noted Sea-Intelligence in its analysis.

Relationship between container demand and global GDP: Sea-Intelligence

And Drewry added that the sector was also still dealing with the oversupply of containers that had built up during the pandemic.

With so much equipment stranded at congested terminals or in extended use on delayed vessels, carriers had rushed to order more containers, driven by inflated freight rates and the ability to charge premium fees to guarantee a supply of boxes to protect their supply chains.

“While 2023 will not see production plunge to that level, output this year is only expected to be in the 1.3m to 1.5m teu range, down from 3.8m teu in 2022 and 7.1m teu in 2021,” said Drewry’s senior analyst, container equipment research, John Fossey.

Carriers boxed in by too much surplus – and costly – equipment

U.S. imports over the first nine months of 2023 were 2.5% higher than in the same period in 2019, pre-COVID, according to Descartes’ data. They were up 4.6% compared to the same period in 2018 and 11.4% versus January-September 2017.

This September’s imports significantly exceeded pre-pandemic levels: up 8% from the same month in 2019, 9% from 2018 and 15.5% from 2017. Normally, volumes decline in September compared to August. 

US container imports still rising, topping pre-COVID levels

Volumes are expected to slow down heading into the holiday season since shippers stocked up on inventory earlier this year to avoid possible labor disruptions, NRF Vice President for Supply Chain and Customs Policy Jonathan Gold said in a statement.

Peak has passed for maritime import volumes: forecast

Other interesting reads for this segment:

Sustainability and Innovation

Shipping companies are ordering more ships running on alternative fuels like methanol, but we need many more to bring down the carbon footprint of ocean shipping substantially. Businesses and ports alike are joining efforts to make shipping more sustainable. Governments are also introducing no legislation to make the shipping industry greener. The recent introduction of the EU Emissions Trading System is one such example. The first result is a rise in cost for cargo owners, as shipping lines are introducing carbon emission surcharges. Also interesting: in a recent report, DNV is looking into carbon capture tech and nuclear power to get the shipping industry to net zero.

Ocean Network Express (ONE) has been named by Xeneta as the most carbon-efficient carrier this year – and long-term measurements show shipping is “getting greener”, the research firm claimed.

ONE now the most carbon-efficient carrier, as ‘shipping gets greener’

The container ship orderbook marches towards record highs constantly, as liner operators and tonnage providers keep targeting a reduced carbon footprint with vessels powered by alternative fuels, even as cargo demand heads south.

Decarbonisation journey pushes boxship orderbook to new high

Shippers are being given preliminary carbon pricing as European legislation aimed to reach carbon neutrality by 2050 fast approaches.

The EU Emissions Trading System will apply to the shipping sector starting Jan. 1, 2024, and will require ocean carries to monitor and report their carbon emissions. By the end of the year, carriers purchase the equal amount of emission “allowances,” where one allowance counts for one ton of CO2.

Here’s a list of ocean carriers and their estimated 2024 carbon pricing.

Ocean carriers to implement carbon emission surcharges in 2024

“In this decisive decade for shipping decarbonization, no stone should be left unturned in securing the future we need and want,” Eirik Ovrum, Maritime Principal Consultant at DNV and lead author of the Forecast says. “Our research indicates conditions under which carbon capture and nuclear could help bridge the gap between short-term measures and the bigger effort needed beyond 2030 to achieve 2040 and 2050 targets in the new IMO and forthcoming EU emissions regulations.”

Can CO2 capture and nuclear get ships to net zero?

In the innovation category, a few news items that caught our eye. One was on funding for an autonomous ship startup. They are developing technology for the defense market. What implications would their automation technology have for shipping freight? Other items are on dual-fuel hydrogen gensets, and another shipping line installing Starlink on its vessels.

Saronic CEO Dino Mavrookas, a former Navy SEAL, launched the company last year with the goal of building autonomous surface ships for the Navy and U.S.-aligned defense customers.

Autonomous seagoing vessels is a growing field, albeit one not necessarily focused on defense. Saildrone, which this spring took the wraps off its autonomous vessel for research, has raised well over $100 million in venture capital. Meanwhile, startups like Shone, backed by Y Combinator, are creating tech to retrofit existing ships with autonomous navigation capabilities.

Saronic, a defense startup building autonomous ships, raises $55M

“Decarbonising onboard power generation is a first step in the race towards zero-emission shipping. As hybrid technologies are becoming more widely used, the presented dual fuel hydrogen genset can be integrated easily and will be able to offer a flexible and future-proof platform to save emission in the maritime industry,” said Roy Campe, CTO at CMB.TECH.

The gensets can still operate 100% on diesel whereby a vessel can also be used when there is no hydrogen available.

First marine dual-fuel hydrogen gensets debut 

Starlink will be installed on Maersk’s more than 330 own operated container vessels, offering high-speed internet with speeds exceeding 200 Mbps. This is a huge improvement in terms of internet speed and latency and is expected to provide major benefits in terms of both crew welfare and business impact.

Maersk to install SpaceX’s Starlink on its vessels

Other interesting reads for this segment:

About the author:

Martijn Graat

Martijn Graat is Zergratran’s Head of Content. He writes about trends and innovations in supply chain and logistics, and anything related to Zergratran