Ocean Freight Update: Weak Demand, Price War Coming, Electrifying Ports, and Nuclear Fusion

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

Will we finally see a halt in ocean freight rates going down? Views seem to vary. Demand is still weak, but costs are still rising.

In April 2023, the container shipping market held its breath. The deterioration in Asia-Europe and Asia-United States came to a halt. The worst looks to have been avoided, at least for the time being, as annual Asia/North Europe contracts were signed for $1,600-2,000 per 40′ container. These rates should enable the shipping companies to keep their heads above water in terms of profitability but will not give them much room for manoeuvre to deal with unexpected developments.

BAROMETER. The fall in ocean freight marked time in April and supply chain reliability started to recover.

The Shanghai Containerised Freight Index (SCFI) steadied and posted a 0.1% w-o-w decline, while China Containerized Freight Index (CCFI) was up 0.3% and World Container Index (WCI) was up 1%.

The rally in freight rates since late April appears short-lived as demand has not yet materially picked up. However, consumption has been resilient, lending hope for a potential restocking-led demand recovery in the second half of the year.

Global Freight Monitor: Losing steam but hope remains

“All arrows are pointing down, with dramatic falls across the board,” says Peter Sand, Chief Analyst, Xeneta, when referring to prices on the five main European export trades (to the Mediterranean, Far East, Middle East, US East Coast, and South American East Coast).

“The biggest lanes are also the biggest losers, with the Far East corridor down 69% year-on-year. Spot prices for the trade are now just under USD 600 per FEU, equivalent to 18% below the pre-pandemic average of 2019. The US East Coast route has experienced the sharpest decline in absolute dollar terms, with prices now a staggering USD 6 000 per FEU lower than their peak in mid-May 2022. As of early May spot prices on this recently very strong trade stood at USD 2 745 per FEU.”

Xeneta: Ocean freight rates plummet from peaks across European export trades, but main plot fails to reveal full story

The difference between supply and demand will become even bigger in the future, as many shipping companies have ordered new ships that have yet to be delivered even with demand slowing down.

In the medium and longer term, the big challenge for shipping lines is the orderbook. An unprecedented amount of new capacity is being delivered starting this year and continuing through 2025. “It is a very significant orderbook. There are quite a lot of ships in the pipeline,” said Habben Jansen.

Although deliveries started ramping up in March and are now in full swing, he believes capacity pressure won’t peak until next year. “For 2023, I think the effect is still manageable because quite a lot of new ships won’t come until the second half. But certainly for the next two years, it will put pressure on the market. When we look to 2024 and 2025, the likelihood that supply growth will outpace demand growth is high.”

Hapag-Lloyd: Higher costs will inevitably push up shipping rates

Next month, 2M partners MSC and Maersk will deploy nine extra vessels on their Asia-Europe services, an injection of capacity in a period of weak demand that may unleash a ferocious race-to-the-bottom freight war on the tradelane.

2M ‘go-slow’ and massive capacity injection lights Asia-Europe touchpaper

According to analysts, things are getting interesting, and some shipping companies are preparing for a pricing war.

Container carriers are embarking on a rates war, according to one leading analyst, while other experts contacted by Splash remain circumspect to label today’s diminished container earnings landscape as an all-out battle to the bottom.

Hua Joo Tan, who heads up research outfit Linerlytica, described the rates war as being “plain as daylight”.

“Carriers have given up all the April gains. Blank sailings are being removed, sailing speeds are rising, carriers have chased up charter rates,” Tan told Splash, going on to highlight some of the “funky” deals being offered by number two carrier, Maersk, adding that it was not just the Danish giant driving the rates battle.

Container rate war ‘plain as daylight’

Other news:

Innovation & sustainability

LNG has long been seen as a sustainable alternative to regular bunker fuel, but a growing number of lawmakers and interest groups have been campaigning against LNG as a green alternative for shipping.

However, advocates of LNG maintain it plays an important role as a bridging fuel. Indeed, the maritime industry has proven it is possible to reduce CO2 emissions by burning LNG instead of liquid fossil fuels, such as heavy fuel oil or marine diesel.

But methane slip – the unburned proportion of the LNG, emitted from the funnel – is proportionately much a more potent greenhouse gas (GHG) than CO2.

Thanks to a great deal of research and development, many ship engines now exude little unburned methane. However, thanks to its proportionate GHG potency, even a small amount of methane slip is enough to mitigate any CO2 emissions reduction.

US and EU lawmakers join growing backlash against LNG

The United States is cleaning up its port facilities by electrifying port operations. Something we applaud. The two ports we will build in Northern Colombia will both be zero-emission and operate fully electric. We will also transport containers from the Atlantic to the Pacific Coast and back with zero emissions.

The US has undertaken a $4bn initiative to electrify its ports and reduce heavy-duty vehicle emissions as the government seeks to address excessive consequences on adjacent communities.

The US Environmental Protection Agency (EPA) is seeking public input on its $3bn Clean Ports Program to reduce pollutants at US ports and its $1bn Clean Heavy-Duty Vehicle Program to reduce vehicle emissions near ports, schools, and other truck routes.

US earmarks $4bn for clean port upgrades

One of the measures governments are looking at to combat climate change is carbon capture and storage. But how to get the CO2 from where it is captured to where it is stored…

Different CO2 capture technologies exists. Chemical absorption, membrane separation and electro-chemical capture systems deliver the captured CO2 in gas form at a high purity. Cryogenic capture technologies deliver the captured CO2 in solid form as dry ice.

Transport of CO2 is most economic in dedicated CO2 pipelines, when the volumes are large and the distances not too long. In some cases, this is true even if the transport includes an ocean leg. For smaller volumes or long ocean leg transports, it is more economic to transport CO2 in liquid or solid form.

A more promising alternative is to transport CO2 in solid form as dry ice at atmospheric pressure and -78° Celsius.

The dry ice can be produced from captured CO2 in gas form by direct cooling or from depressurizing liquid CO2.

The CO2 is already in solid form if the capture is by a cryogenic process.

The dry ice can be transported in standard 20 ft ISO containers, which can be filled and emptied by simply blowing the dry ice when in pellet form.

Why transport of CO2 in liquid form is not the best idea

The Port of Rotterdam has launched a zero-emission shipping project aimed and inland and near-shore shipping. Interesting concept for our project in Northern Colombia as well.

According to the announcement, the project’s name is Condor H2 and aims to facilitate the sailing of 50 emission-free vessels by 2030, targeting a CO2 reduction of 100,000 tons per year.

In particular, Condor H2 will provide fuel cells with a battery pack as well as hydrogen storage on a pay-per-use basis to enable ships to operate emission-free with limited up-front investments for ship owners.

The hydrogen will be delivered in ‘tanktainers’ which can be easily loaded on board vessels and quickly swapped when empty, allowing maximum flexibility for longer journeys.

Port of Rotterdam and partners unveil emission-free shipping project

The final story this week is about a huge bet Microsoft has placed. It is one we hope will pay out, as they’ve invested a huge amount of money in a start-up building a nuclear fusion solution. It’s very ambitious. We love ambitious projects…

Microsoft just signed a jaw-dropping agreement to purchase electricity from a nuclear fusion generator. Nuclear fusion, often called the Holy Grail of energy, is a potentially limitless source of clean energy that scientists have been chasing for the better part of a century.

Experts’ optimistic estimates for when the world might see its first nuclear fusion power plant have ranged from the end of the decade to several decades from now. Helion’s success depends on achieving remarkable breakthroughs in an incredibly short span of time and then commercializing its technology to make it cost-competitive with other energy sources.

Microsoft just made a huge, far-from-certain bet on nuclear fusion

That’s all for this week!

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