Supply Chain Storm Reaching Fever Pitch

The chief executive of consultancy Vespucci Maritime, says the supply chain storm is close to reaching fever pitch barring any hiccups from coronavirus outbreaks in China to cyber security attacks to critical infrastructure. Persistent ructions on global trade routes is one factor fuelling analysts’ predictions that carriers could rake in more profits than they did in 2021. Chinese New Year, has just ended, usually provides the freight and shipping industry with some respite as factories down tools and demand for transporting goods across the oceans experiences a seasonal drop another factor is the drip down of higher spot market rates into the long-term cargo contracts, which are currently under negotiation.

Spot freight market rates to ship a 40ft container from Asia to Europe have jumped from $1,450 before the pandemic to $14,700, according to Xeneta, an Oslo-based shipping data firm. That increase has led contracts that cover cargo volumes for a quarter, a year or two years to almost triple to $9,300, up from $3,400 last year. Parash Jain, head of shipping at HSBC, estimates that container shipping lines will make $163bn operating profit in 2022, an 8% increase over last year. This will be mainly driven by strong tailwinds in contract rates. However, this week the IMF downgraded the economic outlook for the US and China because of multiple challenges including inflation and record debt levels, raising uncertainty over the continuing strength of consumer demand for goods. A souring of the macroeconomic outlook would be a double-edged sword for the cyclical industry. Slower demand is what’s needed for the entire log jams to unwind and be less stressed out. But it’s also a warning sign, analyst at Xeneta, Peter Sand. At first it will be welcomed by many in the industry, but then we’re looking ahead to the latter part of 2023 and 2024 when carriers add a lot of ships to their networks