Ocean Freight Update: No GRI, Shippers Holding Back on Contracts, Draft Restrictions in the 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

Shipping companies had been planning a General Rate Increase (GRI) and had done so several times already, but the global economy got in the way. One of the issues hurting shipping volumes is the large volume of inventory companies worldwide are holding as an after-effect of the supply chain disruptions following COVID. Shipping companies are showing losses in the first quarter, and at the same time, shippers are delaying long-term contracts. While demand is decreasing, capacity is still increasing, with many new builds still to be delivered later this year.

Unsurprisingly as a consequence of the soft demand fundamentals, transpacific container spot rates remain under pressure with the prospects receding daily for ocean carriers to introduce the anticipated mid-June GRI.

“Warehouses remain laden with ageing inventory across the country,” said the Port of Los Angeles executive director Gene Seroka.

Ageing inventories defeat shipping lines’ GRI plans

Hopes of a rebound in freight levels continue to wane as mainline operators fail to implement general rate increases (GRIs) for 1 June, marking their third straight unsuccessful attempt following two flops this month.

The Shanghai Containerized Freight Index (SCFI) has lost 6% in the past month, erasing gains made in April.

Mainline operators have continued to add capacity to the Asia-Europe lane as they fight for market share, hindering any chances of halting the slide. Meanwhile, Transpacific capacity has eased as newcomers either withdrew or cut their deployment.

Box lines’ GRI attempt fails thrice

Ocean carriers with the greatest exposure to the embattled east – west trades recorded the steepest fall in their average freight rates in the first quarter and are struggling to breakeven in the soft market environment.

According to an Alphaliner analysis, Hapag-Lloyd tops the table so far, of carriers that publish their results in detail, with an average rate for the 2.84m teu that it transported in Q1 of $1,999 per teu.

This represents a 27.9% decline in the German carrier’s average rate, compared to the first quarter of 2022, from 5% less volume.

Carriers look for trade mix to stay in the black

A hazy outlook on how the market is going to develop, combined with currently ample ocean capacity, is causing shippers as well as logistics providers to postpone capacity commitments for the time being, according to executives of Seko Logistics.

Shippers hold back on contracts amid uncertainty and ample capacity

One of the earlier scenarios for container shipping’s 2023 peak season went like this: Importers would get cocky and keep much of their business in the spot market. Shipping lines would heavily curtail trans-Pacific transport capacity. America’s inventory overhang would evaporate just as holiday imports ramped up. Spot rates would jump — just as they did in 2020’s peak season after COVID lockdowns — and importers without sufficient contract coverage would get caught out.

Container shipping under pressure as peak season hopes dim

In the meantime, US imports are going down, while Chinese exports are going up.

According to the latest McCown Report US west coast ports saw a 22% decline in container imports in April, compared to the record volumes of the previous year, to 812,611 teu, as economic woes and the protracted labour negotiations continued to take a toll on throughput at the Pacific ports.

US container imports plunge as economy and labour take their toll

The rebound in China’s exports can be attributed to factories operating at full capacity to fill accumulated orders. Following China’s coronavirus outbreak, inventories were depleted, but the Shanghai Containerized Freight Index rose for three straight weeks in April, which last happened in June 2022.

There also has been strong demand for new/alternative energy vehicles, lithium batteries, and solar cells, which are often shipped via specialized vessels known as roll-on/roll-off (roro) carriers rather than standard containers.

Logistics data show rise in China’s exports

Other interesting news items:

Innovation & Sustainability

Containerships are moving slower. Shipping companies are doing that to be more sustainable, at least, that is what one would hope. Unfortunately, in this case, slow steaming is done mainly to create more demand. If ships move slower, they are en route longer, and thus you need more ships to transport the same number of containers (if you can’t move just as slowly as the ships). Not that it is a consolation, but the positive effect of slow-steaming on climate change has recently been proven to be limited anyway, as we reported last week.

Over the entire world box fleet in the last two years, average speeds went down by about one knot, according to Alphaliner data. 

“That does not sound like much, but from a 16.5 knot global average, that is about 6% slower meaning, you need X% more tonnage to carry the same cargo volume,” Tiedemann told Splash. 

“The slowing down of services is a well-used tool in the carriers’ toolbox. For the past couple of decades we have seen this used whenever there is either structural overcapacity or high fuel prices – or both. Presently the industry is facing both issues,” explained Lars Jensen, the founder of container consultancy Vespucci Maritime.

Containerships moving at all-time low speeds

Climate change is impacting operations in the Panama Canal. Due to drought, the water levels in parts of the Canal are so low that the Canal Authority has limited the draft for ships even further. And El Niño hasn’t even arrived yet, which usually means rainfall in the Northern part of South America is less than average. Dragt in the Canal may even go down further. The measures taken by the Canal Authority impact rates for containers on that route.

With rainfall dropping by 50% compared to recent averages from February to April, the Panama Canal Authority has been forced to institute two draft restriction measures, the first this Wednesday followed by another next Monday. Further restrictions are possible with meteorologists warning water depths in Lake Gatun, which is in the centre of the canal, could hit historic lows by July. 

Starting May 24, neo-panamax vessels will be allowed drafts of up to 13.56 m, down from an already restricted 13.72 m. Next week this will drop to 13.41 m, meaning some boxships will need to travel across the waterway with 40% less cargoes. A number of global liners have reacted to the restrictions by announcing surcharges, while shippers are looking at the all-water route from Asia to the US east coast via the Suez Canal as an alternative in the coming few months. 

Further draft restrictions for drought-hit Panama Canal

As a result, transpacific carriers are set to impose hefty surcharges from 1 June for shipments on Asia – US east coast all water services and redirect some of their loops via the Suez Canal.

“The Panama drought season is causing draft issues in the canal, reducing the Panama string capacity,” said Maersk in its monthly market update.

Meanwhile, Hapag-Lloyd said that it would implement a PCC (Panama Canal Charge) of $500 per container effective 1 June on all cargo loaded on its Asia to US east coast sailings via the canal.

Panama Canal restrictions could halt US coastal shift

El Niño is on its way, and when the warm weather pattern arrives, it could take a $3 trillion toll on the global economy, according to new research. That estimate is based on damages inflicted by El Niño in previous years, plus forecasts pointing to a potentially supercharged event this year.

El Niño could take a $3 trillion bite out of the world economy

Other interesting articles on innovation and sustainability:

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