Ocean Freight Update: Rates Still Down, Time in Port Down, Green Initiatives Up, 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

In the past weeks, we have seen ocean freight rates going down and capacity going up.

A subdued peak season, followed by a lengthy slack period, prompting further rate erosion, will wreak havoc on the balance sheets of carriers heavily exposed to east-west trades.

They will need every last dollar of the legacy profits achieved in the first quarter to avoid finishing the full year in the red.

Indeed, container lines are already said to be racking up loss-making voyages on the transpacific, while Asia-Europe results are only being kept in the black by a robust Mediterranean market.

And the delivery of a number of 24,000 teu ultra-large vessels in the coming months, which can only be deployed on Asia-North Europe alliance loops, could start a downward spiral of rates on the tradelane, unless demand picks up significantly.

Trading outlook for second half looking grim for container lines

In the meantime, rates for chartering ships are still robust.

The consensus soon after the market peaked was that consumer demand would sink after stimulus was withdrawn and the U.S. would enter a recession. The liner industry would then reduce capacity to match lower demand by “blanking” (canceling) sailings, stabilizing spot rates above breakeven and supporting profitable contract rates.

Shipping lines would swiftly scrap older tonnage and decline to renew existing leases, replacing older leased vessels with more fuel-efficient newbuildings.

The initial consensus was that the ship lessors — otherwise known as non-operating owners (NOOs) — would have downside protection from multiyear leases extending through 2023 and 2024, but would face much weaker demand for ships that came off charter. Charter rates would follow freight rates down and NOO fleets would be increasingly idled by lack of liner interest.

The container shipping downturn continues to defy this script. 

Ocean carriers are managing the decline more poorly than expected as they compete for market share. NOOs are surprising to the upside.

Container shipping divide: Cargo rates weaken, ship rents ‘robust’

There is another reason for the high chartering prices. It is being caused by one of the large shipping companies buying a huge number of second-hand containerships. By doing this, MSC has taken a completely different approach than its competitors.

…the shortage of open tonnage on the market, is being exacerbated by MSC’s insatiable appetite for buying second-hand ships. Its fleet capacity is almost a million teu clear of rival carrier Maersk, approaching 5.1m teu, with a 1.5m teu orderbook still to be delivered.

Consequently MSC, with more than 300 second-hand containerships bought since August 2020, is able to react to demand peaks and new service opportunities across its network while liner rivals struggle to find open tonnage at affordable daily hire rates and shorter periods.

MSC is bleeding the charter market dry – and keeping rates high

While demand is down in the US and Europe, throughput in ports in China has grown.

China’s total imports and exports expanded 4.7 percent year on year to 16.77 trillion yuan (about 2.36 trillion U.S. dollars) in the first five months of 2023, showing continued resilience amid sluggish external demand. Exports grew 8.1 percent year on year, while imports rose 0.5 percent during the period, the General Administration of Customs (GAC) said early this month.

Official figures from China’s Ministry of Transport show that in the first four months of this year, cargo throughput at China’s ports rose 7.6 percent year on year to 5.28 billion tonnes, while that of containers reached 95.43 million TEU, a 4.8 percent increase year on year.

China’s port throughput boosted by foreign trade growth

As we saw last week and the week before, reliability numbers are also up for most shipping companies. Part of this may be because they have been spending fewer days in port. 

The average number of days for which container vessels were in port at the world’s 20 busiest box ports decreased from April to May by 4.7% to 1.79 days, according to the Shanghai Shipping Exchange (SSE).

Additionally, if we compare May 2023 with May 2022 we see a large decline of 24.8%.

At China’s nine major ports, container ships stayed for an average of 1.42 days, a decrease of 3.4% from 1.47 days in April. Furthermore, the average number of days for which boxships were at anchor was 0.83, a shrinkage of 4.6% from 0.87.

Container ships spend fewer days in port: SSE

Other interesting stories we came across:

Innovation & Sustainability

The article we shared in last week’s update was very clear. We believe it is so important that we will repeat here again:

Greenhouse gas emissions have reached an all-time high, threatening to push the world into “unprecedented” levels of global heating, scientists have warned.

The world is rapidly running out of “carbon budget”, the amount of carbon dioxide that can be poured into the atmosphere if we are to stay within the vital threshold of 1.5C above pre-industrial temperatures, according to a study published in the journal Earth System Science Data

Global greenhouse gas emissions at all-time high, study finds

The shipping industry contributes 3 percent to the total global carbon emissions. It is one of the reasons for our project. We believe that there are greener and more efficient ways to move containers. It’s good to see the industry as a whole moving towards greener options. Here’s what caught our attention when it comes to sustainability and innovation:

Emissions from international shipping, however, are currently significant and rising – roughly equivalent to emissions from an economy the size of Germany or Japan. Looking ahead, they are projected to increase as much as 130 percent from 2008 levels by 2050.

This July, countries will convene in London for the 80th meeting of the Marine Environment Protection Committee of the International Maritime Organization (IMO) to adopt a new greenhouse gas strategy for international shipping (the “Revised Strategy”). It is a key moment to create emissions reduction targets for the sector that align with the 1.5-degree goal.

A Key Moment to Advance Green Shipping

Biofuels look set to become the most viable option for widespread adoption as a bunker fuel for commercial shipping. Hydrotreated vegetables, blend-in combustibles and biomethanol are already being used as drop-in power on some ships, with the potential to replace fossil fuels.

The International Maritime Organisation (IMO) has highlighted 2030 and 2050 as key milestones for carbon emission reductions. International shipping is looking to reduce its carbon emissions by an average of at least 40% by 2030, pursuing efforts towards 70% by 2050, compared to 2008 levels.

The spotlight is on biofuels as a potential solution. And yet, their use in maritime is still on a small scale. The switch to alternative energy requires a multi-faceted approach, including partnering with alternative fuel suppliers to facilitate the adoption of sustainable fuels.

Biofuels as a path to decarbonization

One of the measures that will be taken to force companies to lower their carbon emissions is by taxing them. But where should that money go…

A carbon tax sets a price on carbon and can help reduce GHG emissions and generate revenue. Estimates show that, in shipping alone, putting a price on carbon could raise US$40 to US$60 billion dollars each year between 2025 and 2050.

So how could this money be put to work?

  • It could be used to speed decarbonization in the shipping industry…
  • Reinvesting carbon revenues into port infrastructure can help lower the costs of final delivered product…
  • Just as importantly, the money could be used more broadly, beyond the shipping industry, to help nations and industries mitigate and adapt to climate change… 
Pricing emissions from shipping: Where should the money go?

In an earlier blog update, we wrote about cargo ships with sails. The Chinese have just showcased a ship with rotor sails. These sails are mainly used to save fuel and not as a primary source of power.

The sails, developed over the last three years, are 3 m wide and 24 m tall, with CSSC claiming the ship will achieve energy savings of more than 5%. 

Rotor sails are gaining popularity. Currently Finland’s Norsepower and the UK’s Anemoi Marine Technologies lead the market for this type of propulsion, manufacturing spinning cylinders that use the Magnus effect to harness wind power to thrust a ship.

China showcases its own rotor sails

And then there are those switching part of their fleet to sustainable fuels.

Maersk has decided to retrofit an existing ship to a dual-fuel methanol powered vessel and thereby be able to sail on green methanol. For this reason, the Danish shipping company has signed an agreement with MAN Energy Solutions (MAN ES) which will retrofit the engine.

Maersk announces industry-first container vessel conversion to methanol dual-fuel engine

Other articles on sustainability and innovation:

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