The recent spot rate weakness on the main east-west container should not be mistaken for a structurally weak market, liner analyst Lars Jensen told delegates on the final day of S&P Global’s TPM25 conference in Long Beach.
“I really don’t think the market is that weak – demand remains strong, and the number of boxes being moved globally is still very high.
“Last year, we moved 6% more containers than the year before and, if you take into account the Red Sea crisis and measure it by teu-miles, the growth was 25%.”
In terms of supply, he said, customers had “used a really stable environment for the last decade – we knew who the alliances were and what they offered”.
But he added: “Now everything is changing; carriers are focused on getting the new networks up and running, which means blank sailings are not as effective as normal, and while this is under way, they are hanging on to market share.”
He believed the falling market would be temporary, provided two main conditions were fulfilled: firstly, that there is no recession this year; and secondly, there is not a resumption of Suez transits,
“Don’t confuse the current low rates for a structurally weak market,” he said, and sketched out the likely scenario should the Red Sea crisis come to an end and Suez transits resume.
Earlier in the conference, Hapag-Lloyd CEO Rolf Habben Jansen told delegates he hoped the resumption of Suez transits, whenever it happened, would be done “in a slow and orderly fashion”.
“But that’s not this market operates,” Mr Jensen said in response. “I expect it to be quick and disorderly.
“Reusing Suez will be good news for shippers, but it will bring with it port congestion in Europe that will further tie up vessel capacity.
“In response, carriers will then want to turn their vessels faster, which will then create new problems two or three months later, in terms of equipment shortages in Asia – and that’s not bad news for carriers, but shippers should expect added surcharges.
“Shippers should prepare for a market that’s tight for period while this all works itself out, and after that there will be a crash in rate levels,” he predicted.
Pointing out that the global fleet had grown 11% last year and demand by 6%, Mr Jensen said a period of prolonged overcapacity was inevitable.
“No matter how you slice and dice it, the situation is slightly worse now than 12 months ago, and with European retailers getting an additional 10-14 days into their supply chains once Suez transits restart, they will need to right-size their orders, which could lead to a demand drop of up to 10% on the Asia-Europe trades.
“Meanwhile, freight rates will drop hard – we just don’t know how long for, but I think things are likely to stay that way for a couple of quarters before carriers start laying-up ships,” he added.
