US consumer goods demand, the key driver of the container shipping surge, will slow in 2022 as people spend on vacations and restaurants following the end of COVID-19 restrictions.
But ocean freight rates will not taper as much because global environmental regulations mean reduced ship capacity and carriers seek to maintain their newfound profitability, industry experts warn, reports IHS Media
Rahul Kapoor, vice president and head of commodity research Maritime and Trade at IHS Markit, said during a panel discussion at the TPM22 conference in Long Beach that US consumer spending has grown 47 per cent since the middle of 2020, nearly the same growth as seen over the previous decade.
To handle the volume, ocean carriers have been dispatching larger ships, with the average size ship calling on the North American West Coast 50 per cent larger in 2021 than it was a year earlier. But that has just further reduced US berth productivity, which was already the lowest worldwide, Mr Kapoor said.
'No one can blame the industry for having to respond to that kind of demand explosion,' he said. 'Ten years [of] demand was packed in 18 months.'
Now after three rounds of federal stimulus payments have been distributed and largely spent, Mr Kapoor said US personal income is starting to come down. Moreover, he said consumers are looking to spend more on services rather than goods as pandemic lockdowns ease.
'US import demand will stay strong but at a much, much lower level than in 2021,' said Mr Kapoor.
'You should not expect pre-pandemic freight rates before 2023 or 2024 when we'll be hopefully returning to normalisation,' he said.
Yet that fleet growth will be offset by the introduction of a new emissions rating system that is part of the IMO's push to bring down carbon dioxide (CO2) emissions.
Starting in 2023, all vessels will be subject to an annual Carbon Intensity Indicator (CII) ranking that will measure CO2 emissions during operations, with the rankings becoming stricter over the subsequent years.
Thorsten Meincke, board member for air and ocean freight at forwarder DB Schenker, said ocean carriers may have to slow steam or perform retrofits to meet the increasingly stringent emissions requirements.
Shippers will also demand carriers to meet CII rankings so that they can show they are reducing CO2 emissions in their supply chain, he said.
'The pressure is there,' Mr Meincke told the panel. 'The enforcement will come in 2023 and the goal every year will get higher.'
Even if US import demand starts tapering this year, capacity may still be tight as shipowners start dry-docking ships that have run full-out over the past 18 months, said Carolina Dores, equity research analyst at Morgan Stanley.
'The net effect is that the 8 per cent growth for 2023 is likely to be much lower than that due to the need for maintenance,' Ms Dores told the panel.
She said that carrier profit margins have peaked and will return to normal as ocean freight rates taper. But she said it is doubtful that rates will ever return to pre-pandemic levels as carriers will need to maintain profitability to invest in low-carbon ships and increase employee pay.
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But ocean freight rates will not taper as much because global environmental regulations mean reduced ship capacity and carriers seek to maintain their newfound profitability, industry experts warn, reports IHS Media
Rahul Kapoor, vice president and head of commodity research Maritime and Trade at IHS Markit, said during a panel discussion at the TPM22 conference in Long Beach that US consumer spending has grown 47 per cent since the middle of 2020, nearly the same growth as seen over the previous decade.
To handle the volume, ocean carriers have been dispatching larger ships, with the average size ship calling on the North American West Coast 50 per cent larger in 2021 than it was a year earlier. But that has just further reduced US berth productivity, which was already the lowest worldwide, Mr Kapoor said.
'No one can blame the industry for having to respond to that kind of demand explosion,' he said. 'Ten years [of] demand was packed in 18 months.'
Now after three rounds of federal stimulus payments have been distributed and largely spent, Mr Kapoor said US personal income is starting to come down. Moreover, he said consumers are looking to spend more on services rather than goods as pandemic lockdowns ease.
'US import demand will stay strong but at a much, much lower level than in 2021,' said Mr Kapoor.
'You should not expect pre-pandemic freight rates before 2023 or 2024 when we'll be hopefully returning to normalisation,' he said.
Yet that fleet growth will be offset by the introduction of a new emissions rating system that is part of the IMO's push to bring down carbon dioxide (CO2) emissions.
Starting in 2023, all vessels will be subject to an annual Carbon Intensity Indicator (CII) ranking that will measure CO2 emissions during operations, with the rankings becoming stricter over the subsequent years.
Thorsten Meincke, board member for air and ocean freight at forwarder DB Schenker, said ocean carriers may have to slow steam or perform retrofits to meet the increasingly stringent emissions requirements.
Shippers will also demand carriers to meet CII rankings so that they can show they are reducing CO2 emissions in their supply chain, he said.
'The pressure is there,' Mr Meincke told the panel. 'The enforcement will come in 2023 and the goal every year will get higher.'
Even if US import demand starts tapering this year, capacity may still be tight as shipowners start dry-docking ships that have run full-out over the past 18 months, said Carolina Dores, equity research analyst at Morgan Stanley.
'The net effect is that the 8 per cent growth for 2023 is likely to be much lower than that due to the need for maintenance,' Ms Dores told the panel.
She said that carrier profit margins have peaked and will return to normal as ocean freight rates taper. But she said it is doubtful that rates will ever return to pre-pandemic levels as carriers will need to maintain profitability to invest in low-carbon ships and increase employee pay.
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