Friday, January 27, 2023
spot_img
HomeBusiness21st Century Challenges2023 Expectations for Ocean Shipping and the Broader Shipping Industry

2023 Expectations for Ocean Shipping and the Broader Shipping Industry

After a tumultuous two and a half years, in 2023, it seems like tides are turning in shipping and a normalization which has already started might be here to stay. The definition of normalization is difficult to come by. However, after what everyone involved went through, normalization can be defined as predictability of carrier schedules, reasonable rate levels, acceptable/OK port performance where truckers can schedule appointments for pick up, and empty returns, where the vessels are served by the ports without having a huge queue with no timeline in sight to return to service.

A lot can happen throughout the year, but I have listed our biggest predictions for ocean shipping and the broader shipping industry in 2023 below.

1. Lower freight rates

For ocean freight rates, it is just the perfect storm to have downward pressure. Increased vessel space supply as a result of new vessels coming into service, weakened consumer demand, high inflation, high inventory levels, and now, factory closures in China as a result of skyrocketing Covid cases will all help rates remain at lower levels for the foreseeable future.

Transpacific eastbound to U.S. West Coast ocean freight rates have bottomed out. Larger retailers will use these levels as a benchmark to negotiate new contracts with carriers. Transpacific U.S. East Coast rates will still have some more room to fall. Due to the lack of cargo during and after the Chinese New Year, ocean rates will be at their lowest levels since March 2020. Until the next contract season, which traditionally kicks in April-May, no major upward trend is expected. During contract negotiations anyone with regular volume will have the upper hand. And, the same applies to air freight, especially now that China is opening up. As a consequence, more space will be available and regardless of fuel price increases, air freight rates seem to be going down and will remain at lower levels.

2. Flat demand, flat volumes

The short-term demand drop will continue. Based on our conversation with many importers over the past few weeks, especially for importers of consumer discretionary items, a flat demand and consequently flat volume year is ahead. This is in parallel with overall expectations from other industries, as the status quo will be the same for many different sectors.

3. Increased reliability and carrier on-time performance

As a result of diminishing container volumes and a global slowdown, carrier on-time performance has been increasing. It is not where it was pre-pandemic, yet, but it will get there. Port performance has been increasing, too. These developments will give importers a much-needed break from unknowns and will greatly help future forecasts. Once inventory levels are down, importers will be able to make more targeted decisions when to ship cargo by looking at the various arrival dates provided by carriers. This will also end the just-in-case shipping method, which has become popular to fulfill client orders – a practice which fueled freight rates to their highest levels.

4. Increased decarbonization efforts by carriers

Maersk has a goal to be carbon-neutral by 2050 after reducing CO2 emissions by 60% by 2030. MSC has similar goals as Maersk. In parallel with China, Cosco has goals to be carbon-neutral by 2060. Decarbonization efforts will be accelerated by the help of larger carriers in the world as the time to act is now to reach some of these goals. Green shipping will also become more mainstream as many large corporations have already started to request carbon emissions reports and some already leverage green shipping as a requirement to do any business in the first place. This would help to push all involved to act faster on this matter.

5. Increased pressure to replenish inventories

Inflation worries are here to stay for the foreseeable future and a recession (soft landing or not) ahead. Regardless of overall economic indicators, importers overall will be under a great dilemma to replenish diminishing inventories or wait for a better economic environment. Short-term rates will be the lowest seen in years and it will be extremely tempting to take advantage of rates at these levels. We may not see a full peak season this year, but we expect a better third and fourth quarter in terms of volumes compared to 2022.

6. Commoditization of technology on the track/trace side

Accessing basic track and trace data and increased visibility for container shipping are on their way to become more common across the board. Once accessible through huge investments and only after a long training period with a big learning curve, accessing basic shipping information and real-time information are becoming more and more common across the board, thanks to the latest startups and new technologies that emerged. There’s still a long way to go though. Newly-developed AI applications in shipping will help improve processes and efficiency.

7. Increased regulatory involvements

With the Ocean Shipping Reform Act (OSRA) bill under its belt, the Federal Maritime Commission (FMC)’s involvement on demurrage and detention-related matters will increase and this may push carriers to better manage these matters.

8. China will continue to lose its share

Still the world’s biggest sourcing country, China is slowly but surely losing the production of low-end commodities, toys, and fast fashion to elsewhere. Before Covid, it was tariffs, and during Covid, China has become very unpredictable with overnight changes to its policies which affected and worsened the supply chain crisis and this has pushed almost everyone to have at least an alternative sourcing place. The shift to other countries will continue to accelerate due to labor costs, a better shipping environment, and increased production capacity.

There are still big unknowns.

One big unknown that has been resolved was whether and when China would lift its Zero-Covid policies. Those policies have been lifted. Other unknowns include the Russia-Ukraine war, global inflation, and the expected recession.

If carriers overreact and proceed with huge capacity cuts, rates would be affected. On the other hand, China’s reopening might give a boost to global trade, a recession might be soft, and the war may end soon. Regardless of what happens, more companies are now ready and more informed ever than before and ready to take on the challenges ahead.

One thing is for certain: in ocean shipping, the tides have shifted and it will be a market led by BCOs for the foreseeable future. How BCOs will use this to their advantage will also determine whether we are in for a favorable or unfavorable market environment from the perspective of carriers. Will carriers be pushed to their limits and consequently go back to where they were 5 or 6 years ago? This will also be an interesting year to see where industry relationships are tested.

Serkan Kavas
Serkan Kavashttps://www.mts-logistics.com
Serkan Kavas was born and raised in Turkey. He graduated from Dokuz Eylul University with a Degree in Business Administration in 2001. He had an internship in Germany at a major industrial company after college. He worked at their family business in Turkey and managed their exports from Turkey to Europe. He moved to the U.S. to continue his education in New York and obtained his MBA degree with International Business concentration at New York Institute of Technology in 2005. After graduation he was recruited by MTS Logistics and he has been working at the company since 2005. Serkan worked his way up from the entry level to operations manager and to his current position as our VP of Imports at MTS Logistics. He wears different hats daily with different responsibilities. He has vast knowledge, experience, and understanding of all aspects of logistics, freight, and the supply chain. His focus now is to help develop our import department and help our company move forward.
RELATED ARTICLES

Latest News