Container traffic will continue to decline in the first quarter of 2023, accompanied by lower spot freight rates, as economic conditions continue until the container shipping market “closes to equilibrium”, Jeremy Nixon, chief executive of Ocean Network Shipping ONE, said this week. weaken.

Rapidly deteriorating economic conditions have prompted the Singapore-based shipping company to forecast a net profit of $15.2 billion for the full year ended March 31, 2023, down 9 percent from the actual net profit of $16.7 billion for the 2021/2022 financial year. The container shipping market is expected to be colder in 2023Q2

1. ONE CEO said that consumer confidence has weakened, and some retailers have reduced current purchase orders while inventory has increased. “Inevitably, excess inventory will need to be cleared to accommodate the influx of specific seasonal items and purchase orders over the next calendar year,” he said.
2. ONE reported that net profit rose 31% to $5.5 billion in the fiscal second quarter ended Sept. 30, despite a “sudden drop” in container shipping demand in August and September. Trade demand from Asia typically picks up ahead of China’s Golden Week in October, but that growth failed to materialize this year. Moreover, the decline in overall demand is faster than the speed at which the container shipping market adjusts supply-side capacity, which has led to a substantial adjustment of freight rates in the spot market. ONE expects that transportation demand will continue to decline throughout the second half of the fiscal year.

In March and November, the shipping company will deploy a capacity of 1.49 million TEUs on the Asia-West America route, with the total capacity decreasing by 7% year-on-year. In Asia-Northern Europe, they will deploy a capacity of 1.88 million TEUs, down 11 percent from November last year, according to Sea Intelligence Maritime Analysis.

4. From July to September, ONE shipped a total of 2.9 million TEU, a decrease of 9% year-on-year. The carrier handled 578,000 TEUs on the Asia-North America route, down 11% year-on-year, while the Asia-Europe route also dropped 11% to 395,000 TEUs in the fiscal second quarter. ONE blamed the sudden drop in demand on its two main trade lanes in Asia on rising global inflation, a shift from spending on goods to spending on services following the easing of pandemic controls, rising inventories of consumer goods and a drop in consumer confidence.
5. ONE pointed out in the statement that with the decline in demand and the easing of congestion in the United States and Europe, the utilization of ships on both trade lanes from Asia was lower than 100% in the first quarter of this fiscal year. In terms of market weakness, it is particularly noteworthy that ONE’s reported Asia to North America vessel utilisation figures, which have been at 100% for eight consecutive quarters, are now down to 91%, reaffirming market trends and driving lower rates. .
6. Even with the decline in shipping volume, the freight rate in the financial report is still higher than the level of the same period last year, thus improving the profitability of the shipping company. Second-quarter revenue rose 24% to $9.3 billion, while EBIT rose 29% to $5.5 billion. Bunker prices surged 72% this quarter to $875 a metric ton, but ONE’s bunker costs fell 14% as port congestion in the U.S. and Northern Europe clogged ships and reduced fuel consumption.
7. ONE warns that rising inventories in North America and a recession in Europe will slow the recovery in spot freight rates, which will continue to fall from the highs seen at the end of 2021. The average spot freight rate from Asia to the U.S. West Coast is currently $1,752/FEU, down nearly 80% year-on-year, according to exchange rate benchmarking platform Xeneta. Asia-Nordic spot freight rates are currently at $2,855/TEU, down 65% from the same period last year.

The consecutive monthly declines in spot freight rates from August to October were staggering. In August, spot freight rates from Asia to the U.S. West Coast were down 21% from the previous month, and Asia to Northern Europe was down 14%. In September, the freight rate in the United States and West fell by another 53%, and in October, it fell by 25%; in September, the freight rate in Europe fell by 27%, and in October, it fell by 21%! The actual freight rate will be more serious in various WeChat groups and circles of friends.