Carriers are currently offering incentives to their customers to transport freight from various regions, including North and South Europe, the Middle East, and other backhaul trade routes, as reported by Arcon Containers, a technology company focused on enhancing supply chain efficiency and a part of the Saksham Group based in Mumbai. Supal Shah, the group president, discussed this practice during the Container xChange’s Digital Container Summit in Hamburg, highlighting that carriers are effectively subsidizing cargo transportation costs.
Shah provided an example, stating that containers can be booked for a mere $80 per box when shipping from Hamburg to Shanghai. In contrast, for shipments originating in India and the Middle East, the cost is just $5 per container, which surprisingly includes the terminal handling charge (THC) that typically amounts to around $250 per box. This means that carriers are essentially paying an amount ranging from $170 to $245 to relocate their equipment to Asia.
The movement of empty containers represents a significant expense for shipping lines, with Alexander Overtoom from the Digital Container Shipping Association noting that approximately 60 million empty container moves occur annually, incurring costs of approximately $20 billion.
Overtoom emphasized the potential benefits of improving communication between companies and container depots, as it could increase the availability and visibility of container locations, ultimately leading to better operational efficiency for carriers.
This year has seen a substantial drop in global demand, with John Fossey, a shipping consultant at Drewry, sharing the stage with Shah. Fossey pointed out that the world fleet’s growth rate is outpacing demand growth, leading to a 5% increase in capacity for the year, while demand growth remains negligible at 0.3%. This places continued pressure on shipping rates, a trend expected to persist in the coming years.
Drewry’s forecasts indicate a demand recovery to 2.6% and 2.9% in 2024 and 2025, respectively. However, with only a 0.5% growth in demand projected for 2022 and capacity increases of 4.5%, 2021 appears to be the only year where demand will surpass capacity growth, by 7% compared to 4.7%, within the five-year period from 2021 to 2025.
Fossey also highlighted the challenge of predicting “effective capacity,” influenced by new IMO regulations like the carbon intensity indicator (CII). He explained that between 2020 and 2022, ships were forced to slow down due to port congestion and land-based infrastructure issues in various trade routes, resulting in a 7% reduction in effective capacity.
Drewry estimates that approximately 30% of the existing fleet will eventually need to adopt slow-steaming practices as the CII regulation becomes increasingly stringent toward 2030. Despite these challenges, Drewry’s calculations project global container demand to reach 935 million TEUs by 2025, emphasizing the evolving dynamics in the container shipping industry. Had this calculation been made a few years ago, the forecast might have predicted surpassing the 1 billion TEUs mark by 2027.