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FBX Index: 2022: Dominated by “known unknowns”

Making accurate predictions for the container shipping markets in 2022 is a fool’s game. Forecasting, of course, always involves an element of uncertainty. But as long as market developments are relatively normal – and the risk of major events is small – then predicting rates levels supply and demand is relatively straightforward.

But this time round the risk elements in play for 2022 involve elements which are at the same time unpredictable, have a large impact and have a significant likelihood of actually happening.

Let us take a closer look at the most important elements, which to a large degree will dominate 2022 and a gradual return to normality, as well as why they are inherently unpredictable.

The first element is the pandemic. As the emergence of yet another variant of Covid shows, then we are not at the end-point of the pandemic just yet – and it is also unpredictable which new variant will emerge in 2022. It appears exceedingly likely that more variants will emerge, but we cannot predict which of these might be sufficiently serious to actually have an impact.

And this leads to the second element – government responses to new variants. As we see presently, the Omicron variant is met with very different responses from countries across the globe, ranging from no change at all in some to immediate closure of borders and flights in others. The political response to Covid has changed over time in many countries, and the political turmoil surrounding Covid response is only growing larger with vaccination mandates being the latest injection into the debacle. This means that we are very likely to see political responses to changes in Covid in 2022. However, it is inherently impossible to predict exactly what those responses will be and to which degree they will impact the supply chain materially. Hence the impact ranges from business as usual to week or month long shutdowns of major ports or other supply-chain nodes.

The third element is the time it will take to unravel the myriad of bottlenecks. They will eventually be solved, but as developments have shown in the last few months this is going to take a long – and unpredictable – amount of time. As they gradually unravel, more capacity will become available and this will eventually lead to declining rates, but predicting “when” is not possible presently.

The fourth element related to an unknown amount of demand in the system. Container demand data is always measured on the basis of freight actually being moved. Either containers loaded by carriers or containers handled in ports or containers clearing customs. No one measures cargo currently in containers at origin unable to move due to lack of vessel capacity. We also do not know how much cargo waits in warehouses at origin unable to be loaded into containers due to equipment shortages. And we do not have a measurement on delayed production where the shipper does not want his product manufactured until he can actually be sure it can be moved. As the bottlenecks get resolved, this demand will flow into the system, but the magnitude is entirely unknown.

The fifth element relates to the carriers’ pricing behavior. Seen over the last 23 years the two events which caused the sharpest drops in freight rates were the financial crisis in 2008-09 and the strong price war from late 2014 to early 2016. If we see rates in a similar “freefall” now it will still take 18 months before we get back to normal. But here is another unknown: The carriers are now more consolidated than ever before and they have shown their ability to manage their own capacity much better, not only during the pandemic, but also in 2018-19 through increased blank sailings. How much will this new-found ability reduce the pace with which rate will decline? That is also entirely new and unknown territory in the industry.

About Lars Jensen, CEO, Vespucci Maritime

Lars is a leading expert and thought leader in analyzing global container shipping markets. Lars has 19 years’ experience hereof the last nine within multiple companies he has founded, with the main focus as CEO of Vespucci Maritime.
Source: Baltic Exchange

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