Flood of new container capacity will ease price pressures, but not before 2023
Container liners have enjoyed outstanding financial results during the pandemic, and over the first 5 months of 2021, new orders for container vessels reached a record high of 229 ships with a total cargo capacity of 2.2 million TEU. When the new capacity is ready for use, in 2023, it will represent a 6% increase after years of low deliveries, which the scrapping of old vessels is not expected to offset. Along with global growth moving past the catch-up phase of its recovery, the coming increase in ocean freight capacity will put downward pressure on shipping costs but won’t necessarily return freight rates to their pre-pandemic levels, as container liners seem to have learned to manage capacity better in their alliances.
In the near term, freight rates may yet reach new highs thanks to the combination of further increases in demand and the constraints of a congested system. And even when capacity constraints are eased, freight rates may remain at higher levels than before the pandemic.
In many manufacturing industries, the hurdles to making and distributing goods seen during the earlier days of the pandemic seem to have been overcome. Mark Dow, an independent macro trader who has a large following on Twitter, told us on last Friday’s Twitter Spaces that he now thinks the US has reached a point where rising Covid-19 numbers would do little to offset the economic rebound. The reason being that, by this stage, businesses have learnt to cope to the point where they could easily stomach the impact of rising caseloads. Yet what we are seeing on the Asia to Europe route may reflect broader inflationary trends across the market for ocean freight, especially since prices for freight going from East Asia to the US West Coast have also picked up in recent months.
Post time: Oct-13-2021