Ocean Freight Update: Lower Volumes, Higher Capacity, and Lower Water Levels in the Panama Canal

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

Last week we reported rates going down and, in some cases hitting the bottom (or so shipping companies hoped). We start off with some more news on rates…

The transpacific mid-April GRIs imposed by carriers, ahead of the finalisation of annual contracts, are beginning to lose steam as container spot rates from Asia to the US come back under pressure.

Like Yang Ming chairman Cheng Cheng-mounte, Mr Clerc downplayed any notion of an earlier-than-expected rebound on the tradelane and said: “We continue to expect a recovery in volumes in the second half of the year.”

As expected, spot rates on the transatlantic are beginning to normalise, after carriers flooded the market with extra capacity. The FBX North Europe to US east coast component shed another 10% this week, to $2,768 per 40ft, while the XSI plunged 15%, and 33% month on month, to $2,628 per 40ft.

Carriers struggle to hold transpacific GRIs as rates come under pressure

Volumes are going down.

In March 2023, the rate of contraction for laden imports across the major North American West Coast (NAWC) ports decreased on an annualised basis compared to 2019.

“While this could very well be a temporary easing up, it could also be an indication of normalising market conditions,” stated Alan Murphy, CEO of Sea-Intelligence.

What is more alarming, according to the Sea-Intelligence analysis, is that while empty exports have begun to fall, the rate of contraction for laden exports has not slowed. The most possible reason is that these volumes are being exported via the East Coast, perhaps resulting in volume losses for the West Coast.

Volume contraction slowing in North America West Coast ports, reports Sea-Intelligence

Maersk is also preparing for a slowing of the market, as they announced when they released their Q1 figures.

Maersk says it expects Q1 to be the strongest quarter of the year and prepares for breakeven trading for the rest of 2023.

The Danish transport and logistics group reported ebit/net profit of $2.3bn for the first three months, compared with $7bn in the same quarter of 2022, from revenue of $14.2bn. 

However, its full-year guidance is for an underlying ebit of just $2bn to $5bn, as lower contract rates and weak demand transition into loss-making voyages on some trades.

This morning Maersk CEO Vincent Clerc said there was no firm evidence of a demand recovery, and that the next quarters would be “the reality” of a challenging year.

After ‘strongest quarter of the year’, Maersk will batten down the hatches

An interesting article on the percentage of vessels operated in the shipping alliances versus the number of vessels its members operate.

Alphaliner’s latest report shows that the major container shipping alliances control just 39% of the global box shipping fleet, far below the 80% they previously had.

The consultancy’s latest count shows that the capacity operated by the 2M, THE and Ocean alliances fell to a three-year low in January.

Alphaliner said, “Despite frequent claims the alliances control 80% of the container fleet, an Alphaliner survey shows the nine carriers that form the three major alliances operate the majority of their capacity outside their alliance agreements. The actual amount of capacity operated under ‘alliance services’ is equivalent to a steady 38%-41% of the total fleet based on data from the last five years.”

While the alliances’ members (MSC, Maersk, CMA CGM, COSCO Group, Evergreen Marine Corporation, ONE, Hapag-Lloyd, HMM, and Yang Ming Marine Transport) control almost 83% of the global fleet, many of these ships are operated independently, with just 39% run under alliance agreements.

Alliances’ capacity stands at just 39%

With the latest naval activities around Taiwan, some are calling for caution.

China and its Asian neighbours must work at resolving conflicts, as war in the region would have an impact on container shipping, said Singapore’s defence minister, Ng Eng Hen…

“Thirty percent of the world’s seaborne trade passes through the South China Sea each year,” he said. “One quarter of global oil trade and one third of global container trade passes through the Straits of Malacca and Singapore. We sit astride a key sea line of communication, and if conflict were to destabilise our region, it would have far-reaching implications.”

Container trade will suffer if war breaks out in Asia, says defence minister

There is a surge in orders for new-built Panamax vessels, mainly for bulkers. It’s a good thing we are developing an alternative route to the Panama Canal for containers. This will create more capacity for bulkers and tankers to transit the Canal.

There has been a surge in Panamax newbuilding orders in the first four months of 2023. So far this year there have been 61 orders placed, compared to just 13 for the same period in 2022, an increase of c.369%. The majority of these orders have been placed since March, coinciding with an uptick in Bulker spot earnings as confidence in this sector begins to grow once again. After falling to a two and a half year low of around 5,900 USD/Day in February, spot rates have more than doubled to reach around 13,600 USD/Day, an increase of c.131%.

Surge in Panamax newbuilding orders

Another good reason to create an alternative route for the Panama Canal is the issue with lower water levels in some of the lakes of the Panama Canal System. The Canal Authority has been forced to lower the maximum depth for ships that transit the canal.

A lack of rainfall has forced the Panama Canal to reduce shipping traffic.

The water supply crisis is threatening the future of this important maritime route which links the Atlantic and Pacific oceans.

Around six per cent of all global maritime shipping passes through the canal, mostly from the US, China and Japan. For the fifth time this drought season, which lasts from January to May, the Panamanian Canal Authority (ACP) has had to limit the largest ships passing through.

Panama Canal: Drought threatens one of the world’s most important shipping routes

Innovation & Sustainability

Not that much news this week on the innovation and sustainability front. One item caught my eye. It is about a start-up that wants to take CO2 out of the ocean to fight climate change. The technique is called Direct Ocean Capture (DOC), and the company name is Captura.

The idea is that filtering CO2 out of seawater will allow oceans to soak up more of the greenhouse gas, keeping it out of the atmosphere where it would heat up the planet. The world’s oceans have soaked up nearly a third of humans’ greenhouse gas emissions since the industrial revolution. Without that help, climate change would be much worse than it already is — with global warming already fueling more extreme weather disasters and threatening to wipe some coastal communities off the map.

Even proponents of carbon removal, however, caution that it’s no replacement for preventing greenhouse gas emissions by transitioning to clean energy. Carbon removal is most useful for tackling emissions from sectors that can’t easily run on renewable energy, like steel mills that typically use coal to heat up furnaces to very high temperatures.

And yet all sorts of companies, particularly Big Tech, are turning to technologies that seek to filter CO2 out of the air and water to offset some of their emissions. Captura has a contract with Frontier, an initiative Stripe, Alphabet, Meta, Shopify, and McKinsey launched last year to make it easier for other companies to offset emissions through emerging carbon removal technologies.

Meet the fossil fuel-funded startup trying to take CO2 out of the ocean

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