FBX Index November 2023: Ramping up the uncertainty
Let us start with the element for which there is the least uncertainty: overcapacity.
Carriers are taking delivery of a substantial amount of new capacity both this year and in 2024. In rough terms the global fleet stands to grow 8% over the next two years measured on a year-on-year basis.
At the same time the year-on-year growth for Jan-Aug 2023 was -3.3% measured in TEU and -2.5% if measured in TEU*Miles. Presently the baseline outlook for full year 2023 is a growth of about zero.
Looking to 2024, the outlook is for global GDP to grow 2.9% as per the latest updates from IMF. In the decade before the pandemic it was a standard baseline that global container demand grew in line with GDP on average. In decades prior there was a multiplier effect but this has been reduced to parity in the 2010s. However, this has in recent years been reduced even further to the point where the multiplier effect is closer to 0.5. Given the extremes of the pandemic period it is not clear whether this is a temporary effect or whether the multiplier effect is going to be consistently below parity. In any case, this implies growing issues with overcapacity in 2024.
This means that overcapacity is likely to stay. What is not known is when the carriers will lay up vessels to manage the situation.
The answer to that question became much more difficult to predict after EU regulators decided to abolish the anti-trust exemption for container carriers, also known as CBER.
This regulation has been in place since 2008 and has served as the carriers’ foundation for the way they operate in not just the alliances but also in VSA and other vessel sharing agreements. These collaborations are known as consortia. According to EU regulators, there are currently 43 consortia active on trades to and from the EU, not just the alliances. The CBER exemption will end in April 2024.
The abolition of CBER will not prohibit the use of consortia. What is shrouded in uncertainty is the legal framework as the ruling from the EU reveals a significant discrepancy in the interpretation of the rules.
CBER applies to consortia with a market share below 30%. CBER meant that a consortium, essentially by definition, did not unduly restrict competition as long as it was smaller than a 30% market share. It is perfectly legal to also be above 30% provided you do not unduly restrict competition and you do not need to seek permission to create such a consortium. However, if you are above 30% you might be subjected to an investigation into whether you are unduly restricting competition.
The odd part is that the working document underlying the ruling states that 30 out of the 43 consortia have a market share in excess of 30%, and hence these 30 consortia were not covered by CBER. Legally nothing has therefore changed for them. But it begs the question, why carriers were lobbying to keep a regulation they were not covered by and why shippers would lobby for the CBER to go away to create a more competitive environment if this regulation already did not apply.
In all likelihood this will lead to a re-arrangement of existing VSA and alliance arrangements. The carriers will still collaborate using these arrangements but the constellations might change – and as a consequence the networks are likely to change in spring 2024 as well. Agreeing and implementing new networks while handling blank sailings and idling of excess tonnage becomes very difficult, with the risk of overcapacity persisting before it gets under control.
Source: Vespucci Maritime