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March 4, 2024

Container shipping industry starts to come down from pandemic highs

For the third time this year, Maersk, one of the largest companies in the container shipping sector, has increased its annual profit estimates.

It increased its underlying operating profit expectation for the entire year from around US$24 billion to US$31 billion.

Independent marine research firm Drewry predicts that this year’s operating profit for the whole sector will be US$270 billion, more than ten times the profit of US$26 billion in 2020.

The sector has experienced a boom over the last two years, driven by rising demand for masks and other personal protective equipment as well as consumer expenditure during the COVID-19 pandemic.

The industry is anticipated to be declining from its highs as the pandemic’s impact appears to be wearing off.

Even the normally busy August to October period, during which merchants transfer items in preparation for the year-end shopping season, looks to have decreased.

According to DHL CEO John Pearson, the sector anticipates a milder peak season, depending in part on how China’s zero-COVID strategy pans out and how the energy crisis develops.

Singapore’s Logistics and Supply Chain Management Society’s president, Mr. Raymon Krishnan, reported that Trans-Pacific eastbound rates have fallen below US$5,000 per container. A container cost between $15,000 and $20,000 last year.

There are even indications that it may very well surpass the US$2,000 per TEU barrier, which was the norm before to COVID, he said.

Twenty Equipment Unit, or TEU, stands for a 20-foot container.

The spot tariff for the benchmark route between Asia and the US, according to the Drewry consultancy, dropped to little under $5,000 per 40-foot container, the first time the index has fallen below that barrier since December 2020.

However, the rate is still twice what it was before the pandemic.

The cost of shipping is a major factor in inflation worldwide. Although the pass-through to inflation from such rates is less than those linked with food or fuel expenses, prices for goods increase when freight rates rise.

The cost of living is rising globally, according to Mr. George Griffiths, managing editor of Global Container Freight at S&P Global Commodity Insights.

The cost of food, housing, and energy are rising faster than salaries, he continued.

“The market is genuinely concerned about this… However, since it’s a free market, the owners and captains of the ships are absolutely free to set their own prices, the man replied.

However, for the time being, lower shipping demand and pricing should result in cheaper expenses and fewer supply chain bottlenecks.

While the Logistics and Supply Chain Management Society anticipates major downward pricing to start earlier – in the first quarter of 2023 – Maersk stated that a “gradual normalization” of freight prices will likely commence in the last quarter of next year.

The container shipping sector is preparing for an oncoming downturn, but it is optimistic that the robust profits from the last two years would help lessen the blow.

According to Mr. Raymon, third party logistics providers and shippers see sustainability as the “next big thing” as the sector searches for something to replace the COVID-19 boom.

“Things are rationalizing, things are slowing down. But it’s not catastrophic. It’s not bad. It’s just more challenging.”

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