2028 is earliest for overcapacity absorption: Sea-Intelligence
Lower demand growth, modest supply growth or lower structural factor could push 2019-level balance to 2030 or beyond
The container shipping market is heading into a traditional downcycle as 2023 is seeing significant excess capacity being delivered, and in all likelihood the same will happen in 2024.
"The question then remains of when the current and overcoming overcapacity market will balance again," asks the latest update from Sea-Intelligence.
The most positive scenario, within reason, from the perspective of the carriers would be as follows:
1) Container volume growth of 3.8 percent YoY from 2024, matching the average growth of the post-financial crisis and pre-pandemic period of 2011-2019;
2) Supply growth in 2023-2026 based on the current orderbook,
3) Supply growth of just 1.3 percent for the period post-2026, matching the lowest level seen in the past 10 years (in 2016), and
4) A “structural factor” – i.e. how much faster supply can grow over demand with the market remaining in balance – of 2.2 percentage points.
"Figure 1 shows the extent of the global oversupply compared to the pre-pandemic norm of 2019 for the 2020-2030 period, given the rather optimistic assumptions above. So, absent an explosion in global container demand, another pandemic soaking up capacity or carriers laying up a significant share of the global fleet and ordering no more vessels, then we could see a 2019-level of supply/demand balance in 2028.
"Gaining this balance in 2028 would imply an eight-year span – the same as the cycle from the financial crisis until balance was restored again in 2017. The worst of the overcapacity will be seen in 2024, and by 2026, 1/3rd of the overcapacity will have been absorbed.
"However, if the assumptions underpinning the positive scenario are put in jeopardy by lower demand growth, even modest supply growth, or a lower structural factor, all of which are quite likely, then the 2019-level balance could be pushed out to 2030 or beyond."
Carriers to report $15bn loss in 2024
Container carriers are expected to report a loss of $15 billion in 2024, according to the latest Container Market Annual Review and Forecast from Drewry.
Simon Heaney, Senior Manager, Container Research, Drewry is expecting a 60 percent reduction in freight rates this year "to be followed by a drop of 33 percent in 2024."
The low freight rates, according to Heaney, are the outcome of the demand-supply mismatch - while supply is expected to increase 6.4 percent, demand growth is likely to be tepid at around two percent.
South Asia is likely to lead the demand outlook with nearly five percent YoY increase while "western economies of North America, Europe and Oceania reside in the middle-tier in terms of growth, mainly because they have suffered most this year and therefore have a greater opportunity to bounce back."
Drewry feels it won't be until 2026 that fleet and demand growth will be in sync. "Based on our long-term supply-demand projections, carriers face a relentless challenge to achieve equilibrium over the next few years," Heaney added.