Ex pect the unexpected. That’s the word from the container market analysts out there as rates continue to escalate in the face ofmounting headwinds for shippers.Speaking during a recent online event, Simon Heaney, senior manager for container research at maritime consultancy Drewry, described the current situation as “crazy”, saying it was anyone’s guess how long the current situation would last as container system inefficiencies, disruptions and port congestion had become “embedded in the market”.“These are also the dominant drivers of the freight rates we are seeing at present,” he said. “Carriers' ability to charge these high freight rates will therefore be dictated by the longevity of the supply chain bottlenecks we are seeing.”Drewry estimates that effective container ship capacity was some 17% below its potential in 2021, and expectations for 2022 are not much better at 15%. There is only some light at the end of this particular tunnel in 2023 when it is expected to be below 7% of its potential.Shippers can expect the current uncertainty and volatility to continue throughout 2022.According to Drewry, several headwinds are impacting the market. “These risks individually are already concerning, and it’s difficult to predict the duration or severity of the impact on the supply chain, but the biggest cause of uncertainty is how all these risks are going to play on each other.”At the top of the list is the Russia-Ukraine war. “A prolonged war will drag on global economic growth and container demand, and potentially expedite container supply chain recovery,” said Heaney.Without a recovery in the container market, freight rates will remain exorbitantly high, along with carrier profits.The second risk, said Heaney, was China’s zero-Covid policy that could worsen container log jams by restricting logistics capacity and/or reducing manufacturing production and subsequently container shipments. “The former would act as inf lationary for freight rates, the latter def lationary. In the rest of the world, the easing of social restrictions will drive more consumer spending towards services instead of goods.”He said the ongoing crisis in Shanghai, where serious lockdowns had been instituted to stop the spread of Covid-19, was causing havoc with supply chains.“The number of container ships outside Shanghai increased to 277 as of week 15. This was twice the number of vessels compared to six weeks earlier, and also far more than the 79 ships waiting during the same period in 2019.”Heaney said judging by carrier briefings, however, the terminal operations were working well in Shanghai. There were partial operations and limitations at local warehouses, and limited truck capacity.“The availability of cargoes seems to be a much bigger hold-up at the moment than waiting on berths.”Further lockdowns are expected in Beijing, which would exacerbate the situation. Carriers' ability to charge high freight rates will be dictated by the longevity of the supply chain bottlenecks we are seeing.– Simon Heaney“
