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Signs point to container shipping upturn

Driven by U.S. demand and promising macroeconomic signals, optimism is on the rise.
Driven by U.S. demand and promising macroeconomic signals, optimism is on the rise.
18 April 2024 •

Whisper it softly, but container shipping shows signs of a return to rather spritely health. Despite the many dire predictions of a recession in 2024 from economists, the demand side waters are stirring as American consumers show few signs of reining in spending.

According to the United Nations Conference on Trade and Development (UNCTAD), available data for the first quarter of 2024 suggests a continued improvement in global trade, with global inflation moderating and economic growth forecasts improving.

DHL’s April Ocean Freight Market Update reports that the ocean freight market has grown year-on -year since October, and the trend has continued in 2024, with Asia exports expanding and signs of a recovery on the trans-Atlantic trade also apparent.

“There are now clear indicators that the economic tide is shifting in favor of trade growth. Demand from Asia into North America is particularly brisk,” said Niki Frank, CEO, DHL Global Forwarding Asia Pacific.

The macroeconomic runes

S&P Global Market Intelligence's global growth forecast for 2024 was again revised upward in March. Annual real GDP growth is forecasted at 2.6 percent, up from 2.3 percent at the start of the year.

This followed a broadening and deepening upturn in global economic activity in March. The J.P. Morgan Global Composite PMI Output Index rose to a nine-month high of 52.3, up from 52.1 in February. From a trade demand point of view, business optimism regarding the year-ahead outlook is at a nine-month high as total new orders increased at the fastest pace since June 2023.

Bennett Parrish, Global Economist at J.P. Morgan, said the March PMIs signaled a broadening global expansion consistent with ongoing solid growth, with the U.S. and China remaining at “reasonably elevated levels” and European performance improving. “The outlook is also strengthening, with forward-looking indicators for new orders and future output also moving higher on the month,” he added.

Be mindful of Asia export

On the Asian front, exporters must note that Gemini Cooperation, the new alliance between Maersk and Hapag-Lloyd, which starts operations in February 2025, has no deep-sea calls at Hong Kong scheduled.

As reported by Sea-Intelligence, Ocean Alliance’s updated 2024 network shows direct port calls in Hong Kong declining from 11 to just 6, while THE Alliance’s 2025 Transpacific network overview sees Hong Kong removed from its Pacific South West and Pacific North West services, and will only be served on a single Asia-U.S. East Coast service.

This continues a trend of lost connectivity that stretches back a decade. Sea-Intelligence noted that larger hubs are economically more efficient. As the new alliance constellations improve their networks in the coming years, more ports like Hong Kong could likely be affected.

Trans-Pacific drivers

Across the Pacific, trade is showing signs of a strong year ahead. In March, U.S. container import volumes increased 0.4 percent from February, but jumped 15.7 percent compared to the same month last year. This indicates exceptional growth when considering the impact of the Lunar New Year on the second half of March.

There are some suggestions that disruptions to import flows due to low water on the Panama Canal and the Red Sea crisis are encouraging earlier than usual imports. The threat of east coast dockworker union action later in the year, and new tariffs on imports should Donald Trump win the U.S. Presidential Election in November, are also factors.

But there are also signs that inventories are being restocked as the economy, and the supply chains that serve it, prove surprisingly resilient in the face of multiple headwinds.

According to the latest Global Port Tracker report from the National Retail Federation and Hackett Associates, U.S. box imports in the first of 2024 will total 11.7m TEU, up 11 percent year-on-year, with high single-digit year-on-year growth forecasted through Q3.

Despite the demand-side positives, liner networks have normalized around the extra capacity and transit times affected by Cape diversions to avoid the Suez Canal. Rate increases in the pre-Lunar New Year have gradually ebbed away in recent weeks. Even so, spot freight rates remain at heightened levels.

On 11 April, Drewry’s World Container Index was 64 percent higher than a year ago. Shanghai-Rotterdam and Shanghai-Los Angeles rates were up 91 percent and 117 percent year-on-year, respectively, while Shanghai-New York was 85 percent higher than a year ago.

Although the orderbook remains substantial, the increase in spot rates has encouraged carriers to keep vessels in service. Idle container ships continue to decline due to demand related to the Red Sea diversions and Far East market's recovery after the Lunar New Year holidays.

Liner schedule reliability

In further good news for shippers, liner schedule reliability is improving, albeit rather glacially, as liner networks normalize following the shock of the de facto closure of the Suez Canal to container shipping and resulting diversions around the Cape of Good Hope.

Sea-Intelligence latest Global Liner Performance report found that global schedule reliability improved by 1.7 percentage points in February to reach 53.3 percent. However, this was still 6.9 percentage points lower than a year earlier.

Hapag-Lloyd was the most reliable top-13 carrier in February, with schedule reliability of 54.9 percent. Seven carriers were above the 50 percent mark, with the remaining in the 40 to 50 percent range. PIL was at the bottom with a score of 45.3 percent.

Overall, there is a general sense that the ocean freight situation is seeing more positives. “As always, we monitor the situation closely, and need to adapt quickly to changes in demand and capacity in the months to come,” noted Frank.