A regular feature of AlixPartners’ Annual Container Shipping Report is a section detailing trends to watch in the coming year. Each year, when we prepare our latest report, we review our selection from the prior cycle to learn how well our forecasts held up against real-world events.
In last year’s report, we named five trends to watch in 2023 and suggested how they might develop during the year. Read on to learn how they played out.
Trade flows in flux
We noted in last year’s report that substantial volumes of trade had shifted from the U.S. West Coast (USWC) to the U.S. East Coast (USEC) in response to soaring eastbound transpacific rates, labor market uncertainty, and an acceleration of re-shoring and nearshoring activity. And we suggested that some of the eastward shift of trade volumes could be permanent. We also predicted that EU shippers would turn their focus more toward Eastern Europe and North Africa.
In fact, trade appears to be returning to the West Coast, in the wake of successful negotiations with West Coast dockworkers’ unions. In addition, traffic through the Panama Canal has been curtailed by low water levels, further reducing trade flows to the East Coast. Additional volume shifts to the USWC could be in the offing: the International Longshoremen’s Association, the principal trade union representing East and Gulf Coast shippers in the U.S., has asked its members to prepare for a potential labor action as soon action as soon as October 2024. In the EU, relative labor peace and the sluggish pace of economic recovery have held back trade and kept congestion low. But war in the Mideast has severely disrupted traffic in the Red Sea, leading to unbalanced container inventories and spillback congestion at ports serving that region. Traffic at southern African ports is up as sailings are rerouted to avoid Houthi rebels’ attacks on Red Sea Shipping.
Churn in shipping alliances
The 2023 report took up the subject of alliances among ocean carriers, noting that current combinations, such as Maersk’s 2M alliance with MSC, could be dissolved as the two carriers’ strategies diverged. That dissolution, we opined, could trigger a round of reconfiguration of other alliances, which have helped carriers maintain capacity and pricing discipline.
Sure enough, Maersk has announced that upon termination of the 2M alliance in 2025, it will form a new alliance, Gemini Cooperation, with Hapag Lloyd, which until then remains part of THE Alliance, along with ONE, Yang Ming, and HMM. Gemini’s alliance members envision a hub-and-spoke network consisting of 290 vessels covering seven global trade lanes and 26 mainline services. Maersk will deploy 60% of the fleet. The remaining members of THE Alliance will likely look to form new combinations after Hapag’s departure.
New wrinkles in contracting
Last year’s report observed that the 2023 contract season would likely be marked by departures from historic contracting patterns and conventions, with shippers and carriers alike looking to insulate themselves from rate and capacity volatility. The traditional one-year contracts negotiated in early May, we said, could be supplanted by longer-term deals as shippers sought to secure adequate container space.
Pricing fundamentals changed drastically with the late-2022 collapse in volumes and spot rates, leading shippers to try to renegotiate those longer-term deals and obtain some rate relief. That trend continued through 2023, as inflation-adjusted rates fell to 2019 levels or below and shippers pressed their advantage at the negotiating table. Carriers have taken the inevitable hit, but many have instituted defensive measures that have mitigated the damage. Those measures include:
- More favorable, strategic contracts that include provisions for capacity guarantees, elimination of “not subject to GRI” clauses (contractual provisions stipulating that certain rates are not subject to general rate increases) and long-term locked rates
- Reduced exposure to lanes with higher volatility and blank sailings, including Asia-Northern Europe and Asia-Mediterranean
- Relentless attacks on operating expenses
- Widespread adoption of dynamic pricing and mechanisms to pass through costs to shippers
Questions about capacity
Last year’s report discussed the likelihood of a glut of vessels in 2023, as massive new capacity, including some of the largest container ships ever built, was set to come online just as volumes and rates were scraping bottom.
The glut did indeed materialize in 2023, driven by record ship deliveries. Carriers responded by laying up some ships and deferring delivery of some newbuilds. The oversupply appears set to continue in 2024, as a record number of newbuilds comes online. Clarkson's Shipping Intelligence weekly reports that orders equal to 24.7% of the existing fleet were in the books as of Jan 19, 2024, and half of those newbuilt vessels are expected to hit the water in the coming year.
The deliveries scheduled for 2024 include 298 ships with alternative fuel propulsion, a year-over-year increase of 8%. Methanol has emerged as the most popular alternative fuel, posing a credible challenge to LNG’s dominance.
Despite the record number of alternative-fuel newbuilds, however, carriers are struggling to meet timelines calling for them to reach net zero emissions by 2030. Some carriers, such as Maersk, have already disclosed that they will miss the 2030 deadline and have set internal targets and timelines spanning up to an additional decade.
Heading into 2023, a recession looked like a distinct possibility, with economic growth stalled by rising interest rates and a post-pandemic spending slowdown. A late-year increase in the inventory-to-sales ratio, usually an indicator of slowing economic activity, was an especially ominous sign.
But the predicted U.S. recession never materialized, as record high employment supported strong consumer spending and inflation loosened its grip. Inflation also eased in the EU, most of whose member economies continue to grow, though somewhat anemically. In short, things could have been a lot worse. The market has more potential disruptions in store for 2024. Stay tuned for our Annual Container Shipping Report, set to launch in early March.