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FBX Index: No short term fix in sight

It has been 15 months since the pandemic initially shut down China and since then the container shipping industry has been constantly impacted by a barrage of disruptions.

The initial wave of blank sailings prolonging the Chinese New Year capacity reductions. Then the rapid downturn in early spring as the pandemic spread globally. Then the demand surge initially on the Transpacific which led to equipment shortages and surging rate levels. We saw port congestion emerge further removing both vessels and equipment from the global balance. Vessels were temporarily removed from service as crew was tested positive for Covid. Thousands of boxes were lost overboard on multiple occasions in the Pacific. The Suez Canal got blocked for almost a week.

And whilst it is never pleasant to be the bearer of bad news, it is always more productive to have a realistic assessment of the situation when making business decisions.

First of all, will the stream of disruptive events never end? The latest event in the flow of bad news was the emergence of a strike in the port of Montreal rapidly creating a line of vessels waiting at anchor. This port alone handles 5000 TEU per day and hence the disruption quickly escalates.

But let us give pause here for a second. Such an event is actually a quite normal state of affairs in container shipping. Before the emergence of the pandemic there was also a constant stream of such minor disruptive events. Port strikes. Political turmoil closing a port here or there. Vessels breaking down. Containers falling overboard. Vessel collisions and fires. Not that any of these events are positive, but they are a normal state of affairs. Before the pandemic they came and went without much global impact.

Hence in the yearning for “returning to normality” we should remember that the normality includes all these minor disruptive events which have impact at a trade lane level, but not necessarily at a global level.

What will have changed, however, is that the market is entering a structural upcycle. The period 2021-2024 is likely to see 18% demand growth whereas capacity growth is more likely to be around 10% when vessel scrapping is taken into account. This means there is less overcapacity in the market, which is positive from an efficiency perspective. But it also means there is less buffer in the system to handle these normal disruptions. In turn this means that we should expect disruptions to have a stronger short-term impact on not only supply/demand but also on spot rate developments in individual trades going forward, which in turn means that shippers would be well advised to re-think their supply chain risk profiles.
Source: The Baltic Briefing

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