Sea freight: transport costs are not expected to rise anytime soon according to Upply
By Ibrahima DIALLO
December 14, 2023 / 13:12

While freight rates have almost returned to their pre-Covid-19 level, overcapacity is expected to remain the norm over the next two years. While this market turnaround after the health crisis is good news for shippers, it requires a rethink of the business model for shipping companies, according to a note from the Upply platform.

More than 30%. This is the drop in one year of the average cost of transporting a 40-foot container according to the World Container Index of the British firm Drewry. The cause, of course, is inflation and the drop in global demand, but also an overcapacity that has caused prices to fall. Of course, this drop was much more marked at the beginning of the year than now, but this trend is set to continue, according to Jérôme de Ricqlès, maritime expert at Upply.

“While the drop in demand has played a key role in the decline in container shipping prices, the situation has been compounded by overcapacity, with companies gradually taking delivery of ships ordered during the financial boom of 2021-2022,” he explains. “This overcapacity will continue in 2024 and 2025, plunging the container shipping industry into yet another structural supply crisis.”

Different strategies to deal with overcapacity

On the one hand, ship demolitions are taking place at a lower rate than the commissioning of new capacities, on the other hand, the expert believes, the rates should not rebound unless there is a major exogenous crisis of the type of the health crisis.

In this context, the main companies have taken different options: the Italian-Swiss MSC (which left its alliance with Maersk this year) has opted for an aggressive pricing policy, while the Danish Maersk and the French CMA CGM have instead focused on vertical integration.

In addition, in 2024, they will have to deal with the end of the derogations that maritime transport consortia have benefited from for almost 15 years, in April. On 1 January, the system of trading in emission quotas will come into force in the European Union.

Still on the environmental front, the European Union is tightening its rules on illegal discharges. The European Parliament's Committee on Transport and Tourism has proposed an update to the regulations, including fines. If it is adopted, wastewater, garbage and scrubber residues from ships will also be subject to European legislation.

The challenges of decarbonization

The maritime transport sector, a major emitter of CO2, has become aware of the need to achieve its energy transition but "the objectives remain difficult to achieve, as the systemic approach is lacking", underlines Jérôme de Ricqlès.

Thus, companies have certainly taken advantage of the huge profits made in 2021 and 2022 to invest in the decarbonization of their fleet, but uncertainty continues to hover over the technical solutions to be implemented. "Ammonia seems to stand out as an alternative transition fuel while the industry remains dependent on the internal combustion engine," points out Upply.

In short, after a prosperous period, the challenges are multiplying for companies and the reversal of the trend between supply and demand requires them to review their development models in a geopolitical environment that is uncertain to say the least. "An additional year with the same freight levels as in 2023 would definitively erase the positive effects of the Covid years in the financial statements of containerized shipping operators," warns Jérôme de Ricqlès.

Sophie Creusillet

0 comments

IF YOU WANT THE INFORMATION TO COME CLOSER TO YOU

Newsletter

Videos

There are no upcoming events at this time.