The shipping market will face challenges in 2023, with freight rates, volumes and demand falling

The shipping market will face challenges in 2023, with freight rates, volumes and demand falling

After more than two years of rising rates and a shortage of capacity, the rapidly cooling ocean freight market is set for an "extremely challenging 2023".

Ocean freight rates will drop "significantly" as cargo volumes continue to decline, prompting carriers to increasingly idle their fleets once all available ships and containers come into service over the next two years. Analysts predict a turbulent year for the air cargo market as well.

The platform emphasized that since the summer of this year, ocean freight rates, which rose to a high point during the epidemic, have fallen sharply, and in terms of spot freight rates, the drop has been very large. Based on data from the world's leading shippers, analysts predict this trend will continue in 2023, leading to a further 2.5% drop in ocean freight volumes.

Stakeholders in the sea and air freight value chain are facing tough times.

“The cost of living crisis is eating into consumer spending power, resulting in reduced consumer demand for imported containerized cargo. There is no sign yet of a global solution to this problem and we expect ocean freight volumes to decline.”

"That said, if the economic situation worsens further, it could get worse."

The continued decline in cargo volumes will lead to an "unbalanced" situation in the market, which will lead to further excess capacity and lower utilization rates. It pointed out that the delivery of new ships may increase the capacity of up to 1.65 million TEU, while the demolition of old ships can only offset part of it.

Xeneta expects a 5.9% increase in capacity, noting that even with demolition at twice its current forecast level, the ocean freight industry is still on track to increase capacity by almost 5%.

Berglund predicts that with a further decline in cargo volume in 2023, as much as 1 million TEU or more of capacity is expected to be idled, and shipping lines will continue to struggle with excess capacity. He noted that this combination of weak demand, lower cargo volumes and excess capacity will inevitably continue to exert downward pressure on freight rates into 2023 as new vessels enter the market.

“We expect to see a significant drop in freight rates. Carriers have proven adept at protecting and boosting rates during the pandemic, but with excess capacity and eased port congestion on most trade lanes, they will be in 2023. Losing battles," Berglund said.

"During the first half of 2023, we could see spot rates on some key trade lanes drop to pre-pandemic levels, while long-term Contracted freight rates will drop rapidly. However, in the first half of 2023, long-term contracted freight rates will not be lower than spot freight rates.”

“As far as upcoming contract negotiations are concerned, it is imperative to keep a close eye on the latest market data to get the best value. However, these negotiations will be difficult for all parties. Carriers will be desperate for volume, while at the same time , shippers will not be able to get the high volumes that will bring the best prices. Regardless, the future holds both opportunities and challenges in the short and long term.”

One area where the ocean freight market could benefit is the potential reduction in air cargo. Xeneta said the airfreight market faces a “bumpy road” as lower ocean freight costs and improved schedule reliability could induce some shippers to make a modal shift.

“To be fair, the change in general cargo volumes will not be huge for carriers, but it will have a strong impact on the air business, which obviously has much less volume.”

Berglund added that as travel restrictions are eased, bellyhold capacity will increase, which will be supplemented by conversions during peak air cargo periods and orders for freighters. He noted that this would lead the air transport industry, along with the ocean shipping industry, to suffer from excess capacity, negatively impacting load factors and freight rates.

Berglund concluded that 2023 will be a challenging year for both shippers and shipping lines. Negotiations to renew long-term contracts will be complicated as shippers plan to reduce volumes and carriers will seek to maximize volumes. A combination of economic uncertainty, geopolitical concerns (not only related to the Russia-Ukraine conflict), ongoing strike action along the logistics chain, ongoing pandemic policies, and weak demand, easing congestion, and increased capacity will further complicate the shipping market change.

"However, as we've seen over the past few years, in a world that is moving faster and faster, it's nearly impossible to make predictions, so there may be some unknowns waiting to impact the market."