Global container shipping turned a corner in the second quarter of 2022 according to the findings of the latest Quarterly Review of the market produced by MDS Transmodal and Global Shippers Forum.

Covid lockdowns in China, suppressing supply of manufactured goods and demand for raw materials, and plummeting sentiment in consuming countries, due to rising interest rates and energy prices, contributed to a fall in average earnings per container carried for the first time since 2020. (Graph 4.1)*

While total container carryings were up on Q1, this volume remained below the level recorded in the same period a year ago (Graph 1.2). This was despite traffic that had switched to other modes or to bulk shipping earlier in the year returning to the more traditional containerised mode.

The reliability and consistency of port calls showed a small improvement in Q2, but this was seemingly made by intermediate port calls being missed altogether. The capacity lost to ‘skipped’ ports remains high (Graph 7.2).

A reshaping of container shipping service patterns seems to be underway with a further increase in Q2 of the number of services connecting no more than two regions, together with a reduction in those linking more than two regions (Graph 2.2). In practical terms this means long, multi-port ‘loop’ schedules are being replaced by ‘shuttle’ services with transhipments required at hub ports in order for containers to reach their ultimate destinations.

Mike Garratt, Chairman of MDS Transmodal commented, “In the last quarter we have seen global network capacity grow marginally but underlying demand stay flat. Spot freight rates are now falling steadily and it will be interesting to see as a consequence the share of the minor bulks trade that returns to the major lines. The direct connectivity and reliability of making port calls offered to shippers continues to deteriorate.

In welcoming the Quarterly report James Hookham, Director of GSF, said, “This is the first time the GSF/MDS Transmodal Quarterly Review is showing a significant change in the direction of travel. This is just one set of data points, but shippers are telling us the world economy, international trade and the global shipping market have entered a new phase, with different factors at work compared to the past two years.”

Over the coming months, GSF and MDS Transmodal will continue monitoring whether the opportunistic gains made by shipping lines since 2020 are consolidated into a strategic shift in rates and service patterns imposed on shippers, or whether different carriers will respond instinctively and distinctively to the changing conditions.

James Hookham continued, “This change in market dynamics could provide a context for the use of freedoms granted to shipping lines under anti-trust immunity and Block Exemption legislation to re-engineer an industry-wide shift in capacity deployment, service patterns, port call frequency and market share concentration. Recent experience has shown this is not a market where regulators can ‘legislate and forget’ hoping expected behaviours are observed.

The number of parameters needed to monitor the market are many and complex and GSF and MDS Transmodal invite competition regulators around the world to ‘watch this space’ with us over the coming months”.
Source: MDS Transmodal

Container volumes in head-haul and regional trades are the key drivers of container vessel demand, average container rates, liner operator profits, and, since 2020, port congestion. According to Container Trade Statistics, combined head-haul and regional trade volumes fell 0.4% y/y in the first half of 2022. Head-haul volumes were 1.3% lower than a year ago while regional volumes were 0.6% higher. Under normal market circumstances the peak season in key head-haul trades should lift Q3 volumes. However, recently released volume statistics indicate that there may be no peak season in 2022 but it is very likely that volumes will slow in Q4.

In July, the combined head-haul and regional trade volumes fell 1.5% m/m but were up 1.5% y/y. While this initially seems to be a relative improvement in volumes, compared to first half results, the figure appears in a different light when historical seasonality is considered.

As an example, in the Far East to North America trade lane, volumes in July have historically been on average 7.0% higher than June volumes due to the beginning of the peak season. However, this year volumes were 3.3% lower in July than in June. Applying historical seasonality, volumes should have been nearly 200,000 TEU and 10.6% higher than actual volumes.

Using the same principle for all head-haul and regional trade lanes, the combined July volumes should under normal circumstances have been 3.3% higher; 4.3% higher in head-haul trades and 1.9% in regional trades. Overall, volumes would then have been 4.9% higher than July 2021 instead of 1.5%. This is partly because it in 2021 was the first time in recent years that volumes in July were lower than in June.

Applying the same seasonality-based calculation to the rest of 2022, the full year volume estimate ends at 77.8 million TEU and 63.7 million TEU for head-haul and regional trades respectively. In total, that would leave the combined volumes at 141.5 million TEU and 1.3 million TEU lower than in 2021 (a reduction of 0.9%). Head-haul volumes would be down 3.3% y/y while regional volumes would be up 2.3% y/y.

Focusing on the rest-of-year period from August to December, the calculation indicates that combined head-haul and regional trade volumes will be down by 1.9% y/y. From a congestion perspective it is interesting to note a 10.7% y/y and 8.2% y/y fall in import volumes to the Europe and Mediterranean region and North America respectively.

“Considering the risk of energy shortages in Europe during winter and that conditions for consumers and businesses are likely to get worse before they get better as the year progresses, it is possible that volumes could end even lower,” says BIMCO’s Chief Shipping Analyst, Niels Rasmussen.

“Though we appreciate that this approach to forecasting rest-of-year volumes may be somewhat simplistic, the overall forecast does tally with the economy-based forecasts in our recently published Container Market Overview and Outlook report. The prediction will most likely not end up 100% accurate, but we do believe the overall trend will end up correct, confirming a very muted peak season in key head-haul trades and lower Q4 volumes in line with normal seasonality,” Rasmussen says.
Source: BIMCO, By Neils Rasmussen, Chief Shipping Analyst