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Liner networks taut as peak season looms

Liner networks are getting low on capacity, which may prove problematic should demand continue to increase into the third quarter.
Liner networks are getting low on capacity, which may prove problematic should demand continue to increase into the third quarter.
17 May 2024 •

Global container shipping schedule reliability is finally improving, but liner networks have little slack as demand builds ahead of the peak container shipping season. There are nascent signs that the traditional Q3 peak might be building early this year.

The latest liner schedule reliability data from Sea-Intelligence indicated improving performance, with global reliability up by 1.6 percentage points in March 2024 compared to February 2024, taking overall reliability to 54.6 percent.

However, reliability is still not back to pre-crisis levels. On a year-on-year level, schedule reliability in March 2024 was down by 7.9 percentage points.

Niki Frank, CEO of DHL Global Forwarding Asia Pacific, noted that as carriers have adapted to ongoing geopolitical situations, schedule reliability will likely continue to improve slightly.

“Container backlog is clearing up post-new-year-surge, and we are seeing the round-Africa routings via the Cape of Good Hope normalizing,” noted Frank. “So, we are cautiously optimistic that, barring any exceptions or black swan events, the global ocean freight market will likely stabilize in the coming months.”

Idle fleet diminished

Reliability improvements have been achieved despite networks being stretched due to diversions around southern Africa to avoid Houthi attacks in the Red Sea approach to the Suez Canal. This has sucked up all excess global container shipping capacity despite new building deliveries hitting record highs this year.

Idle container shipping capacity in late April amounted to just 0.6 percent of the global fleet compared to over 3 percent a year earlier. According to Alphaliner, charter rates remain heightened with the liner fleet fully employed as carriers snap up any available capacity to capitalize on higher freight rates.

Blank sailings have also been a rarity even as spot rates softened post-Lunar New Year. According to Sea-Intelligence, spot rates are significantly higher than pre–Red Sea crisis and pre-pandemic. On Asia-North Europe and Asia-North America East Coast, there has been a sharp drop-off in blanked capacity in recent weeks. A similar trend is seen on Asia-Mediterranean.

Tight supply encourages carriers to boost freight rates, prompting some to introduce more Red Sea-linked surcharges.

Container market intelligence firm Linerlytica also added that the bullish container freight and charter markets continue to gain ground, with carriers pushing for further rate hikes through May. Meanwhile, demand for ships remains unabated in the first week of May.

In the upcoming weeks, the number of vessels redirected to the Cape Route is expected to reach 5 million TEU. The containership diversions to the Cape route will effectively remove more than 7 percent of the total fleet, easing concerns for overcapacity.

Demand on the rise

DHL’s May Ocean Freight Market Update noted that PMIs continued to signal a pickup, and that S&P has revised its real GDP growth forecasts for 2024 upwards in some major economies, including the Eurozone, Canada, Japan, and Russia.

Boosted by improved trade, the Eurozone saw growth of 0.3 percent in the first quarter, its strongest level since the third quarter of 2022.

The Organization for Economic Co-operation and Development predicts that global trade in goods and services will rise 2.3 percent this year and 3.3 percent in 2023. Chief economist Clare Lombardelli, said a lot of the increase was due to cyclical recovery as trade rises alongside broader economic growth.

Neil Sharing, chief economist at Capital Economics, said the manufacturing recession that struck trade activity last year has now run its course. Similarly, Dr. Salomon Fiedler, an economist at the German bank Berenberg, pointed to the tentative recovery in Europe, stating that trade in Europe was recovering faster than expected.

“We were expecting Eurozone foreign trade to pick up this year, although indications now are that the rebound, especially in exports, happened sooner than we previously thought,” said Fiedler.

Growth in Asia-Europe trade

Improving economic conditions are being reflected in volumes. Shipping consultancy Maritime Strategies International (MSI) noted that a strong rebound in cargo demand across the world is supporting liners’ endeavors to keep freight rates at their current levels.

MSI further added that European imports from the Far East grew by 11.5 percent year-on-year in February. Meanwhile, non-main lane trades from the Far East to Latin America, Africa, Oceania, and the Middle East/Indian subcontinent region also grew by 22.4 percent, 23 percent, 29.8 percent and 30.2 percent, respectively, in February.

“DHL Global forwarding saw 6 percent growth in ocean volumes in the first quarter, with volumes from Asia particularly strong. There are definitely signs that European business activity is picking up, which is a good sign of trade demand. And the U.S. market also remains buoyant,” said Frank.

In Asia-Europe trade, there are already reports of cargo rollovers and suggestions that the 2024 peak season might have started early, and carriers are introducing peak season surcharges.

A peak season conundrum

The rise in rates in Q2 could be a sign that many shippers are moving cargo early to avoid peak season congestion and higher rates. But if this is the start of a prolonged peak season that lasts through the third quarter, shippers could see more supply chain disruption and higher costs later in the year, according to Xeneta chief analyst Peter Sand.

On the latest Loadstar podcast, he said that any meaningful increase in current demand could overstretch liner networks.

Sand further commented: “What happens if demand were really to stack up in Q3? Rates would really go up again, maybe even above where they were when they peaked in mid-January. But it could just be that the smart shippers have front-loaded.”

Carrier eyes on Suez

On the flip side of that argument, a lot is riding on the ongoing closure of the Suez Canal for container lines.

The latest episode of The Freight Buyers’ Club podcast reported the extra capacity sucked up by diversions of vessels around southern Africa to avoid conflict in the approaches to the Suez Canal was the key factor preventing excess vessel supply sinking freight rates and liner profits.

There is an air of caution that if the Suez Canal reopened to container shipping, it would prompt a complete collapse in freight rates. However, this scenario is unlikely since the Middle East crisis is might drag out for many more months, and perhaps even turn into a multi-year issue.

Frank added that maintaining equilibrium between demand and capacity will be crucial to foster sustained growth in the ocean freight market for the remainder of 2024.

“With the persisting conflict in the Middle East, ocean freight is vulnerable to geopolitical risks. Apart from supporting our customers with multimodal options, we would like to remind shippers to prepare for potential demand spikes by securing adequate capacity in advance to mitigate the risk of shortages later on,” concluded Frank.