Ocean Freight Update: Rates Still Going Down, Slow Steaming Doesn’t Work, Ammonia powered engines, 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

Ocean freight volumes haven’t quite bounced back as everyone expected after China lifted all COVID restrictions.

As the year progressed into the second half, global container volumes began plummeting, and there were still no signs of a surge in volumes coming out of China. As the hopes of a potential freight wave eventually began to fade, it was still widely believed that China’s reopening would (at least) be a major factor in helping boost volumes and possibly create a “soft landing” for the global ocean container market. Unfortunately, that boost in volumes never appeared. Instead, volumes continued to soften out of China during a largely nonexistent peak season. The weakening volumes were then met by emerging headwinds such as the inventory glut, weakening consumer demand and increasingly negative economic landscape. 

Reality of ocean container volume far cry from China reopening hype

We have been reporting on ocean freight rates going down, and unfortunately for the shipping companies, the end is not yet in sight.

Hongkong and Shanghai Banking Corporation Limited (HSBC) reported that the Shanghai Containerised Freight Index (SCFI) declined by 1.5% week-on-week, while China containerised freight index fell by 1.2%, mainly due to weaker Intra-Asia rates, likely because competition intensified amid slower than-expected China recovery.

The recent decline echoes HSBC’s view that spot rates are losing momentum due to a demand-supply imbalance. However, during the recent first-quarter results, liners unanimously expressed that they could settle contracts at profitable levels and the current spot freight rates, which are below costs, will not be sustainable.

Container freight rates drifting lower

Recent maritime shipping trends show a reduction in cross-ocean shipment transit time across all major ocean routes over the last nine months, signaling an ongoing reduction in global demand for goods out of Asia, according to e2open, which operates a connected supply chain SaaS platform.

Report: cross-ocean shipment transit times have dropped over the last nine months

While volumes and rates are still down, efficiency at ports has been going up. Most ports have been recovering from the pandemic-era disruptions.

Operational conditions at global ports have improved significantly following the unprecedented levels of disruption triggered by the COVID-19 pandemic, according to the third edition of the global Container Port Performance Index (CPPI). Globally, ports are continuing to clear backlogs, but additional scope for efficiency gains remain. Further digitalization of port processes and modernization of port infrastructure would improve productivity, customer service and emissions reductions, the data suggest.

Global Container Ports Continue To Recover From Pandemic-era Disruptions, Yet More Scope for Efficiency Gains Remain

Other interesting news:

APM Terminals is investing in new terminals in the South American Region.

As part of a Dutch trade delegation to Brazil this week, APM Terminals’ CEO Keith Svendsen pledged a EUR962 million (R$ 5.2 billion) investment in its Brazilian operations up to 2026.

APM Terminals pledges EUR962 million investment in Brazilian Terminals by 2026

Before we move on to the sustainability and innovation news, here are two more nice articles. One which will help you select the right container for your shipment and one with some fun facts on ocean freight.

Innovation & sustainability

One of the ways shipping companies are trying to limit their carbon emissions is by slow steaming. The downside of slow steaming is that ships are full of containers longer, so the more ships steam slow, the lower the total available capacity in the market. A recent study has found that slow steaming isn’t nearly as effective in limiting carbon emissions as once thought. If this is the case, shipping companies need other ways to limit their carbon emissions, like alternative fuels or an alternative zero-emission shipping route.

The emission benefits of slow-steaming may have been “grossly overestimated”, according to studies by Simpson Spence & Young, corroborated by research from Clarksons last week.

Although it has been assumed that ship speed has a cubic relationship with fuel consumption, with consumption increasing exponentially as speed increases, real-world evidence has shown this largely academic assumption does not necessarily pan out in reality.

This threatens to undermine many of the maritime industry’s long-held beliefs, and even brings into question the assumptions underlying the IMO CII regulation.

Benefits of slow-steaming on emissions exaggerated, studies find

Last week’s announcement by the 2M Alliance partners that they intend to inject nine additional vessels into their Asia-North Europe and Asia-Mediterranean loops will see the network absorb the 24,000 teu newbuild ULCVs coming to MSC over the summer.

Notwithstanding, the circa 200,000 teu of capacity that will be added to the 2M’s Asia-Europe network with the deployment of the nine extra vessels, by extending voyage transit times, in theory, the weekly capacity offered will remain unchanged – albeit that the phasing-in of bigger ships will increase it slightly.

MSC’s megaship newbuilds will be soaked up by slow-steaming

Carbon emissions are about to become expensive as the European Union introduces carbon pricing.

The two EU carbon-pricing schemes that shipping will soon be subject to are a case in point. Carbon Dioxide (CO2) emissions from ships ≤5000GT in 2024 reported under the EU’s Monitoring, Reporting and Verification (MRV) system will also be included in the regional Emissions Trading Scheme (ETS). Those vessels in scope of the ETS will need to buy EU Allowances (EUA) to cover half of their greenhouse gas (GHG) emissions to and from EU, Norway and Iceland ports, and all emissions for intra-EU voyages and while at berth at EU ports.

The other mechanism is FuelEU Maritime, which will come into effect in 2025. The regulation sets targets for reducing the yearly average GHG intensity of the energy used onboard by a ship (or, crucially, onboard a fleet or pool of ships). The required GHG intensity reduction starts small, at -2% in 2025 (compared to a 2020 baseline), reaching -6% in 2030 and -14.5% in 2035, through to -80% by 2050. A penalty or reward is then calculated based on the extent of under- or over-performance against the vessel or fleet’s target for the year, and the cost of low-carbon fuel that would have been needed to meet the target.

EU carbon pricing brings new pressures – and new plays – to maritime

To end this overview on a more positive note, here are some interesting innovations that caught our eye this week.

Belgium has put autonomously operating inland barges in operation. An interesting development.

The first two vessels – River Drone 1 and River Drone 2 – have been christened and will work on inland shipping routes, capable of taking dry bulk or containers. The ships are hybrid and electric and come with the option to convert to hydrogen.

All navigational tasks, including navigation and steering, manoeuvring, lock passages, mooring and unmooring, communication with other vessels and on-shore authorities via VHF, communication with onboard crew and people on shore is carried out by an onshore operator.

Belgium gets a glimpse of autonomous shipping future

Japan has been making breakthroughs in ammonia engines.

In April this year, IHI Power Systems commenced operational tests at its Ota plant on a 280 mm bore four-stroke ammonia-fuelled marine engine for the main engine of a tug. 

The tests also confirmed that emissions of dinitrogen monoxide (N2O), which has a greenhouse effect about 300 times greater than carbon dioxide (CO2), and unburnt ammonia were virtually zero, and there was no ammonia leakage from all demonstration equipment during operation and after shutdown.

The engine will now be installed on a tug, which will be completed in June next year. 

Japanese make ammonia engine breakthroughs.

Our final story this week is on an American startup that is trying to solve road congestion in port areas, by creating a sustainable solution for transporting containers to and from transportation hubs located miles outside the high-traffic port area.

Chicago-based transportation innovator EagleRail has designed a new way to solve the first miles from port to container distribution hub. Looking at an average port setup, the process would work like this: Cranes offload containers from a ship and place them on terminal equipment on the dock that transports them to the closest EagleRail load station. One of EagleRail’s patented motorized carriers picks up the container there and transports it autonomously to the right destination.

 A Sustainable Solution to Solve Road Congestion in Port Areas

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