Container xChange released its Container LogTech 2023 predictions report, noting that a survey of supply chain business leaders found that inflation and recession are the main fears for companies as they enter 2023.
More specifically, inflation and recession topped the list of fears with 88% of respondents noting them as factors for 2023, followed by implications of war with 57%, impact of COVID in China at 53% and worker strikes at 23%.
#1 Inflation to lower consumer confidence even further
Consumer spending will be slow in 2023. This drop will remain a big concern for the global economy. With the global inflation rates rising and the Chinese New Year coming up, the first two quarters of 2023 are likely to be difficult for the shipping industry. Because of this, the report expects empty containers to be sufficiently available at many ports across the world.
#2 A year of worker strikes gone, another to come
The unresolved worker strikes of 2022 will spill over in 2023. Furthermore, the chances of new strikes coming up are high due to inflation-related rise in prices putting pressure on workers’ disposable incomes. Labor dissatisfaction might grow in European and North American economies. In that case, it will cause disruptions in global supply chains.
#3 New Container ships in 2023-2024
A record number of new and huge container ships will hit the water in 2023. At present, the containership orderbook reportedly stands at 7.1 million TEUs. Most of the tonnage on order will be delivered in 2023 and 2024. Alphaliner predicts 2.34 million TEUs in 2023 and 2.83 million TEUs in 2024, compared to around 1.1 million TEUs in both 2021 and 2022.
#4 Equipment surplus to cause ripple effects in Q1
Carriers, freight forwarders, container leasers and traders might bear the brunt of low rates and excessive competition as markets will slowly align with the dropping demands. During the pandemic, very little of the equipment was scrapped, but in 2022, carriers began disposing of their old fleet.
#5 Congestion at depots to stay throughout Q1
Container depots will remain overstocked for the first few months of the year as inventories will run high. Feeble demand, the upcoming Chinese New Year, and inflation will keep the pickup volumes low, creating an overall challenging price environment for containers.
#6 Container storage fees and other fines to rise
Congested depots will charge higher container storage fees to disincentivize containers from staying past their deadlines. Empty container repositioning will remain a problem in 2023 while more equipment will hit the waters. Ports will face congestion and containers exceeding their dwell times will face increased demurrage and detention charges. In addition, in 2023, there will be careful monitoring of other fees like insurance charges, claims, etc.
#7 Plummeting freight rates will rise but not soon
As the growth of the volume of goods will remain low, the imbalance between demand and supply of freight transport services will continue. Spot rates will continue to drop in 2023 – at least initially – and it will take some time to recover.
#8 Market volatility to cause a price war
As the market gets flooded with containers, shipping lines shall continue to either reduce vessel capacity or stick to blank sailings. Maersk, for example, has been making such capacity adjustments in its services from Asia to other continents. Under such circumstances, we expect a rate war in the shipping industry in 2023.
#9 Contract rates to remain low, pulled down by spot rates
Long-term shipping contract rates will see an uptick in 2023, though gradually. This slow increase applies to all modes of transport. With negotiations going on to bring contract rates in line with spot rates, a reset is expected. On the other hand, until there is a balance reached between supply and demand, forwarders will favor short-term contracts. Once the rates begin stabilizing, long-term contracts will become popular.
#10 Trucking rates to suffer
Trucking rates for both dry and reefer cargos will continue to drop in 2023. Freight tonnage will continue to contract as market conditions and volumes return to pre-pandemic numbers. As the market has significant freight capacity available in 2023, trucking rates will also suffer. There is a risk of small trucking and transport companies shutting down. In trucking, owner-operators will take up jobs with large conglomerates and become a part of their fleet.
#11 Air freight market to decline
2022’s dip in transported cargo volumes will continue to impact the air freight industry in 2023. As airfreight volumes will continue to drop, freight forwarders will become wary of long-term contracts. They will employ a ‘wait and see’ approach before making any long-term air cargo capacity commitments. On the other hand, low reliability on ocean carriers’ schedule numbers had led to shippers resorting to air freight instead. But now that port congestion is easing, ocean carriers’ schedule reliability is expected to improve. With that, it is likely that carriers would exhibit a modal shift from air to ocean freight, which is also a more cost-effective option for them. As the International Air Transport Association (IATA) had pointed out, the global air cargo volumes are forecast to decline 4% year-on-year in 2023, after an 8% drop this year.
#12 Carriers to cut capacity, bring back balance
In 2023, the capacity growth in the carrier industry will be high as more equipment and vessels will join the global fleets. But the consumer demand will continue to fall for a while. The Chinese New Year – and the shutdown of factories in China – will also add to the market slump. Small carriers and freight forwarders will face harsh struggles, but alliance carriers will mostly survive unharmed. The focus of the carrier industry would be on offering good discounts to maintain their portfolios among such clients. But since remaining profitable will be a higher priority, carriers will be taking actions globally or on select trade routes.
#13 SOCs will struggle with lack of digital transformation
In 2023, the usage of SOCs in ocean freight bookings will continue to be hampered by low levels of transparency, visibility and trust. Shippers looking to use the more flexible SOCs to avoid hefty fees will struggle with getting accurate quotations, confirmations of available capacity, and a lack of schedule reliability. Amidst a lack of digital transformation, shipper owned containers will struggle with a lack of carriers to take care of the processes. In 2023, companies investing in SOCs will find that their margins are not as great.
#14 Mineral supply for clean energy to cause tensions
The US and EU will need to secure critical mineral supply chains. Furthermore, inflation-related price pressures will continue to weigh down on the metals and minerals markets. As both the US and the EU intend to add significant clean energy sources, it will add competition and demand for copper, lithium, cobalt and nickel, making shortages in the future a real risk. The issue could also exacerbate the US-China as well as US-EU tensions. As policies and investments start impacting markets, they will drive geopolitical dynamics with countries from Africa, Latin America, and beyond.
What will carriers do in 2023 to manage equipment capacity and ensure profitability:
- No new equipment: Carriers will avoid adding new equipment to balance the demand.
- Blank sailings: Shipping lines will continue with blank sailings.
- Suspension/merging of shipping services: Alliance carriers might continue to suspend and/or merge shipping services on different routes.
- Scrapping old vessels: Carriers will choose to send old vessels for retirement.
- Delaying new vessels: New vessels scheduled to hit waters will be delayed.
- Idling vessels: Carriers might allow the vessels to idle or be sent for maintenance work.
- Slow steaming: Vessels will sail at slower under new laws climate laws, also to manage demand.
- Price war: Shipping lines will go into a price war to ensure profits.
#15 Increased focus on diversification of sourcing
To avoid lockdown-related delays in manufacturing and shipping, companies will move away from highly globalized supply chain models of the pre-pandemic times. In the future, more companies will adopt near-sourcing, nearshoring, and reshoring trends to bring their manufacturing hubs closer to their end-markets. These new sourcing strategies will aim at rebalancing supply chains by deleveraging from areas of concentrated production activities and spreading them over a range of countries to increase flexibility and resilience.
#16 US to push harder for ‘friendshoring’
The US coined a buzzword for the industry this year: friendshoring. The term refers to the process of relocating supply chains to countries that are ‘friends’ or allies of each other. The objective seems to be to prevent countries – especially China and Russia in the case of the US – from using their market advantages in key raw materials, foods and products. Apple wanting to reduce its dependence on producing iPhones in China and exploring India as an alternative, is an example of that. Same with Foxconn expanding production facilities in Vietnam. However, it will take several years to move capacity out of China. The US itself continues to depend on China for hundreds of critical goods including textiles, chemicals and electronics.
#17 Third-party logistics or 3PLs will rise to even more popularity
If you are a retailer and want to partner with a 3PL, this can help you scale up. Through 3PLs, you can outsource your logistics operations, and this can save you time and money. At the same time, you build your own network of carriers and create ready access to a fleet for yourself. You get low rates as well. We expect the 3PL market to solidify in 2023. Reportedly, it’s projected to reach $1,789.74 billion by 2027.
#18 Trade with China to become “Trade with China+1”
Companies looking for sourcing alternatives will not diminish China’s vital role in global manufacturing in 2023. We will witness a gradual shift from industries relying solely on China for production capacity and skilled manpower. As the years move on, manufacturing and production companies will diversify and spread their businesses to ‘China+1’ or other viable locations in the region such as India and Vietnam.
#19 Industry’s digitalisation to remain slow
In 2023, industry players will be pushing for digital transformation in the ocean freight industry – but the speed of innovation will be slow. In the years to come, the adoption of digital technologies in shipping will focus on vessel schedules, intuitive booking interfaces, instant slot booking, and capacity confirmations. In this regard, the industry’s major concern will be on having systems interact directly via automating the Data-Analysis-Decision-Action cycle.
#20 Loss of talent
With rising costs, there might also be pressure on employers to increase employees’ salaries. As the industry struggles with these pressures, it will need to consider new strategies to sustain businesses.
#21 Not so sustainable a shipping industry
In 2023, the dreams of achieving a sustainable global supply chain and logistics system will remain far-fetched. The sustainability of our supply chains, one of the key challenges faced by the industry, will continue to be an ongoing conversation. A lack of consolidated effort in directing investments to make the industry more sustainable will hamper the goals and targets set for the future.
#22 MARPOL vessels to test their exhaust emissions
The International Convention for the Prevention of Pollution from Ships (MARPOL) is the main international convention responsible for the prevention of pollution of the marine environment, caused by ships from operational or accidental causes. From 1 January 2023, vessels registered in MARPOL signatory countries will have their exhaust emissions tested at the vessel’s next annual, intermediate or renewal survey thereafter
#23 Shipping industry work cultures to undergo change
During the pandemic, the shipping industry moved to a culture of working from home. Digitalization aided the shift as well. We expect this new pattern of working from home to continue in 2023. And so, it is plausible that more talent will join the industry this year. The industry will face demands of better work conditions, competitive wages, and job security from the newer generations of shipping staff that join.
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