The container shipping industry experienced an unparalleled surge during the pandemic; however, in 2023 so far, the market has been anaemic due to an oversupply of capacity and sluggish demand.
Freight demand has declined significantly after reaching its peak in September 2021, as consumers reduced their spending on luxury goods and the global economy grappled with inflation and rapid interest rate hikes. As a result, spot rates on significant trade routes have dropped rapidly.
Although shipping lines reported strong profit margins in Q1 of 2023 due to pre-negotiated contract rates, we anticipate a substantial decrease in these margins. As contract negotiations are currently underway, revised rates will soon come into effect, impacting the profitability of shipping lines in the second half of 2023 and throughout 2024.
While the drop in demand and rates are having an immediate effect on carriers’ profitability, the forthcoming influx of new ships will have a significant impact on the market for years to come.
Freefalling prices, surging costs
The year 2023 started with a significant oversupply of containers and high uncertainty in the market—which led to substantial container-price erosion. The average container prices have been freefalling, and there are no signs of revival as we approach the busiest period in the shipping industry. It is quite evident that this year’s peak season is almost invisible.
Container prices in June 2023 for major supply chain markets like China, Europe, and the U.S. reached their lowest average levels when compared to the same month in both 2022 and 2021. This decrease in container prices may suggest an additional burden on the profitability of shipping companies.
A recent study conducted by Container xChange examined the trends in average container prices for standard containers (new and cargo-worthy) during the second quarter of 2023 (April to June). The study found no significant rise in average container price for either new or cargo-worthy containers during Q2. Figure 1 shows the price development (or “delta”) of average containers on key routes during Q2 2023. Only Northern Europe and the Middle East and Indian Subcontinent regions experienced slight increases in prices. The rest of the regions showed negative (or near flat) trends for standard containers.
[FIGURE 1] 90-day delta for average prices of standard containers Enlarge this image
Figure 2 compares average container prices for some of the busiest ports in the world from the Container xChange platform. The prices have fallen to the lowest levels in the last three years of comparison. Clearly, the data indicates poor demand for containers in 2023 up to June.
[FIGURE 2] Average prices for 20-foot cargo-worthy dry container (in U.S. dollars) Enlarge this image
While container prices have been dropping, operating expenses for container lines have been rising. The main reasons for this increase have been soaring energy prices and labor expenses, neither of which are expected to decrease soon. Additionally, the shipping industry is facing high demurrage and detention charges and various fees related to container storage and transfers. The shortage of container depot space also remains a persistent struggle, with depots charging exorbitant fees that pose additional burdens. Our customers have informed us about terminal tariff hikes in Europe and India, causing further concerns for carriers.
These rising operating costs will likely influence spot freight rates. In the intensely competitive container shipping industry, the minimum price offered in the market tends to align with variable costs. Over the years, variable costs in container transportation have risen by approximately 15% to 25% since 2019, varying depending on the specific trade route. Consequently, the lower threshold of freight rates set by carriers has also increased within the range of 15% to 25%. This presents challenges for shippers, as they now encounter higher variable costs when transporting goods. Despite the significant decrease in average container rates from 2021 to 2023, with a reduction of nearly 85%, the underlying variable costs remain elevated. As a result, it is unlikely that spot freight rates will experience a significant additional decline, as contract rates still have room for further depreciation and remain relatively stable.
Capacity takes center stage
The container shipping market’s recent good years prompted a surge of orders for new and larger container vessels. Research conducted by the maritime consulting company Drewry and the financial services company ING Group estimates that fleet capacity will be increased by 27% due to the new vessels being delivered between 2023 and 2025.1 More than 700 ships are expected to be delivered between 2023 and 2024, with an additional 150 coming in 2025, according to ING and Drewry. Among these orders, 45% are for Neo-Panamax size vessels (12,500-18,000 TEU or twenty-foot equivalent unit) and another 20% are for ultra-large container vessels (ULCV). Feeder vessels (up to 3,000 TEU) make up just over a third of the ordered vessels, representing 8% of the total capacity. The report says these investments are being driven not just by expected future demand but also by a desire among carriers to expand their fleet and introduce larger and more efficient vessels.
Indeed, it is unlikely that the additional capacity will be absorbed by increased demand any time soon. Moreover, as port congestion eases, previously blocked capacity is gradually being freed up. These supply chain improvements could significantly improve supply; especially considering that at the worst point in early 2022 up to 15% of capacity was tied up at the ports. The significant influx of new capacity, combined with sluggish trade growth, could potentially disrupt freight rates. And yet, we do not expect to see extensive order cancellations, as stakeholders will aim to preserve the efficiency gains they have made per unit carried.
That’s not to say that we won’t see capacity cuts. Container liners operating on the Asia–U.S. trade route, for example, have implemented a 14% reduction in capacity due to persistent weak demand and surplus capacity. And more capacity cuts may be on the way. While some container lines and analysts predicted a surge in cargo demand in August—driven by dwindling inventory stocks in the U.S. and the aftermath of recent port operation delays caused by the International Longshore and Warehouse Union (ILWU) strikes—that optimism has not been reflected at the ground level. Shippers, for their part, continue to observe weak demand, with only a slight increase in less-than-container load (LCL) shipments, indicating a lack of strong demand for full container load (FCL) shipments. Furthermore, many shippers have already adopted online spot rates, indicating a shift in their preferred approach to freight rate negotiations. To achieve rate stability, carriers will need to make more substantial capacity cuts, which will test their determination as they strive to push for rate increases in August.
Effective capacity management becomes crucial considering these circumstances. The container liners response to this uncertain scenario is yet to be seen. So far, liners have been driven to secure market share. Vessel utilization levels have already decreased (down to 75% in the first quarter), and freight rates have demonstrated fragility in the second quarter, with the potential for further decline. Given that container liners are financially strong, these circumstances could easily evolve into a prolonged price war.
The venture-backed fleet telematics technology provider Platform Science will acquire a suite of “global transportation telematics business units” from supply chain technology provider Trimble Inc., the firms said Sunday.
Trimble's other core transportation business units — Enterprise, Maps, Vusion and Transporeon — are not included in the proposed transaction and will remain part of Trimble's Transportation & Logistics segment, with a continued focus on priority growth areas following completion of the proposed transaction.
Terms of the deal were not disclosed but as part of this agreement, Colorado-based Trimble will become a shareholder in Platform Science's expanded business. Specifically, Trimble will have a 32.5% stake in the newly expanded global Platform Science business and will receive a Platform Science board seat. The company joins C.R. England, Cummins, Daimler Truck, PACCAR, Prologis, RyderVentures, and Schneider as a key strategic investor in Platform Science along with financial investors 8VC, Activant Capital, BDT & MSD Partners, Softbank, and NewRoad Capital Partners.
According to San Diego-based Platform Science, the proposed transaction aims to enhance driver experience, fleet safety, efficiency, and compliance by combining two cutting-edge in-cab commercial vehicle ecosystems, which will give customers access to more applications and offerings.
From Trimble customers’ point of view, they will continue to enjoy the benefits of their Trimble solutions, with the added flexibility of the Virtual Vehicle platform from Platform Science. That means Virtual Vehicle-enabled fleets will receive access to the Virtual Vehicle Marketplace, offering hundreds of new and expanded applications, software, and solution providers focused on innovating and improving drivers' quality of life and fleet performance.
Meanwhile, Platform Science customers will enjoy the added choice of Trimble's remaining portfolio of transportation solutions which will be available on the Virtual Vehicle platform, the partners said.
"We believe combining our global transportation telematics portfolio with Platform Science's will further advance fleet mobility and provide our customers with a broader portfolio of solutions to solve industry problems," Rob Painter, president and CEO of Trimble, said in a release. "Increased collaboration between the new Platform Science business and Trimble's remaining transportation businesses will enhance our ability to provide positive outcomes for our global customers of commercial mapping, transportation management, freight procurement, and visibility solutions. This deal will result in significant synergies along with tremendous opportunities for employees to continue to grow in a more-competitive business."
The acquisition comes just five months after Platform Science raised $125 million in growth capital from some of the biggest names in freight trucking, saying the money would help accelerate innovation in the commercial transportation sector.
Nearly one-third of American consumers have increased their secondhand purchases in the past year, revealing a jump in “recommerce” according to a buyer survey from ShipStation, a provider of web-based shipping and order fulfillment solutions.
The number comes from a survey of 500 U.S. consumers showing that nearly one in four (23%) Americans lack confidence in making purchases over $200 in the next six months. Due to economic uncertainty, savvy shoppers are looking for ways to save money without sacrificing quality or style, the research found.
Younger shoppers are leading the charge in that trend, with 59% of Gen Z and 48% of Millennials buying pre-owned items weekly or monthly. That rate makes Gen Z nearly twice as likely to buy second hand compared to older generations.
The primary reason that shoppers say they have increased their recommerce habits is lower prices (74%), followed by the thrill of finding unique or rare items (38%) and getting higher quality for a lower price (28%). Only 14% of Americans cite environmental concerns as a primary reason they shop second-hand.
Despite the challenge of adjusting to the new pattern, recommerce represents a strategic opportunity for businesses to capture today’s budget-minded shoppers and foster long-term loyalty, Austin, Texas-based ShipStation said.
For example, retailers don’t have to sell used goods to capitalize on the secondhand boom. Instead, they can offer trade-in programs swapping discounts or store credit for shoppers’ old items. And they can improve product discoverability to help customers—particularly older generations—find what they’re looking for.
Other ways for retailers to connect with recommerce shoppers are to improve shipping practices. According to ShipStation:
70% of shoppers won’t return to a brand if shipping is too expensive.
51% of consumers are turned off by late deliveries
40% of shoppers won’t return to a retailer again if the packaging is bad.
The “CMA CGM Startup Awards”—created in collaboration with BFM Business and La Tribune—will identify the best innovations to accelerate its transformation, the French company said.
Specifically, the company will select the best startup among the applicants, with clear industry transformation objectives focused on environmental performance, competitiveness, and quality of life at work in each of the three areas:
Shipping: Enabling safer, more efficient, and sustainable navigation through innovative technological solutions.
Logistics: Reinventing the global supply chain with smart and sustainable logistics solutions.
Media: Transform content creation, and customer engagement with innovative media technologies and strategies.
Three winners will be selected during a final event organized on November 15 at the Orange Vélodrome Stadium in Marseille, during the 2nd Artificial Intelligence Marseille (AIM) forum organized by La Tribune and BFM Business. The selection will be made by a jury chaired by Rodolphe Saadé, Chairman and CEO of the Group, and including members of the executive committee representing the various sectors of CMA CGM.
Economic activity in the logistics industry expanded in August, though growth slowed slightly from July, according to the most recent Logistics Manager’s Index report (LMI), released this week.
The August LMI registered 56.4, down from July’s reading of 56.6 but consistent with readings over the past four months. The August reading represents nine straight months of growth across the logistics industry.
The LMI is a monthly gauge of economic activity across warehousing, transportation, and logistics markets. An LMI above 50 indicates expansion, and a reading below 50 indicates contraction.
Inventory levels saw a marked change in August, increasing more than six points compared to July and breaking a three-month streak of contraction. The LMI researchers said this suggests that after running inventories down, companies are now building them back up in anticipation of fourth-quarter demand. It also represents a return to more typical growth patterns following the accelerated demand for logistics services during the Covid-19 pandemic and the lows of the recent freight recession.
“This suggests a return to traditional patterns of seasonality that we have not seen since pre-COVID,” the researchers wrote in the monthly LMI report, published Tuesday, adding that the buildup is somewhat tempered by increases in warehousing capacity and transportation capacity.
The LMI report is based on a monthly survey of logistics managers from across the country. It tracks industry growth overall and across eight areas: inventory levels and costs; warehousing capacity, utilization, and prices; and transportation capacity, utilization, and prices. The report is released monthly by researchers from Arizona State University, Colorado State University, Rochester Institute of Technology, Rutgers University, and the University of Nevada, Reno, in conjunction with the Council of Supply Chain Management Professionals (CSCMP).
That hiring surge marks a significant jump in relation to the company’s nearly 17,000 current employees across North America, adding 21% more workers.
That increase is necessary because U.S. holiday sales in 2023 increased 3.9% year-over-year as consumer spending grew even amidst uncertain economic times and trends like inflation and consumer price sensitivity. Looking at the coming peak, a similar pattern is projected for this year, with shoppers forecasted to drive a 4.8% increase in holiday retail sales for 2024, Geodis said, citing data from Emarketer.
To attract the extra workforce, Geodis says it will offer competitive wages, peak premium pay incentives, peak and referral bonuses, an expedited payment option, and flexible schedules. And it’s using an AI-powered chatbot named Sophie to serve as a virtual recruiting assistant.
“We acknowledge the immense responsibility we have to our customers to deliver exceptional service every day, and this is especially true during peak season,” Anthony Jordan, GEODIS in Americas Executive Vice President and Chief Operating Officer, said in a release. “Because peak season is the most business-critical sales period of the year for many of our retail clients, expanding our workforce is vital to ensure we have a flexible, dynamic team that can handle anticipated surges in demand.”