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Surplus containers: Is this the beginning of the end of the shipping industry’s bull run?


Since late 2020, ocean carriers have been cruising ahead in full steam, propelled by a dramatic rise in freight rates. For the container shipping industry, which had been bleeding losses for long, it has been nothing short of a windfall as supply-chain congestions at ports across the world have helped them rake in billions of dollars in profits.


But this bull run could be nearing an end if early signs of a trend reversal are anything to go by.


A surplus of containers has already started playing spoilsport on freight rates while easing congestion at major ports is also pushing down demand.


For instance, according to US-based maritime research consultancy Drewry, currently there is an excess capacity of container equipment to the tune of 6 million TEUs (twenty-foot equivalent units).


This is in sharp contrast to the pandemic-induced situation wherein containers were in short supply. In fact, empty boxes are piling up in the container yards of major ports across the world. Moreover, shippers are finally seeing a continuous improvement in both transit times and shorter delays.


All these factors have led to a steady decline in freight rates from their peak in September 2021. And for the container shipping industry, which moves 80% of the merchandise volume in global trade, what lies ahead could be a prolonged correction in freight rates.


Will it push them back into the rough seas?


Early signs of reversal

The industry has carried over the momentum into 2022, and the world’s biggest container lines are on course to post profits that will top last year’s record by a whopping 73%.


According to a forecast by shipping expert John D McCown, founder of Blue Alpha Capital, which advises private equity and hedge funds investing in the transportation sector, the net income of the top 11 shipping carriers this year will likely grow to USD256 billion from the record high of USD148 billion posted last year. The two major factors supporting growth are sustained US imports and continuing supply-chain bottlenecks.


However, volumes are already beginning to pinch. Danish container shipping line and vessel operator Maersk said in its Q2 results that “Volumes in ocean were softer, as congestion continued and the war in Ukraine weighed on consumer confidence, particularly in Europe.”


For starters, the oversupply in containers is a natural outcome of the demand-supply forces finding a balance at new levels. According to estimates, 13%-14 % of the global container fleet was stuck at ports during the pandemic. The short supply created panic and large shipping companies started ordering new ships and containers at record levels.


However, the global pool of containers has been steadily rising over the last few months. In 2021, the global pool of shipping containers grew by 13% to almost 50 million TEUs, which is 3x the prior growth trend. At present, the global shipping industry’s container fleet size is at around 35 million units. Between 2 million and 3 million containers are produced every year and the traded volumes of second-hand containers is around 2x-3x of the newly built ones.


Read More at https://economictimes.indiatimes.com/prime/economy-and-policy/surplus-containers-is-this-the-beginning-of-the-end-of-the-shipping-industrys-bull-run/primearticleshow/93715716.cms

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