The shipping industry, particularly concerning spot rates and their implications for 2024 contracts, presents a complex and evolving scenario. In the last weeks of 2023, container lines’ financial outcomes for 2024 hinge significantly on their ability to increase spot rates. A failure to do so would result in considerably lower annual contract rates compared to this year, signaling a potentially dire financial situation for shipping lines. Maersk CEO Vincent Clerc highlighted the importance of spot market developments in Q4 2023, indicating that a lack of improvement would lead to a difficult situation in 2024. The Drewry’s World Container Index (WCI) showed a 6% decline in global composite spot rates in late 2023, with most east-west trade lanes experiencing decreases. This trend has implications for Asia-Europe and Asia-U.S. annual contracts resetting in 2024, which, if aligned with Q4 spot rates, could lead to substantial losses for container lines, especially with costs being 25-30% higher than pre-COVID levels.
Clarksons Securities analyst Frode Mørkedal identified ship overcapacity as a primary concern rather than future demand. Mørkedal anticipates significant industry adjustments in 2024 to address overcapacity, potentially elevating freight rates. However, this relies on liners making necessary capacity adjustments through slow steaming, ship idling, scrapping, or service cancellations. Despite expectations, such adjustments have been minimal in the current year, with liners continuing to order new ships, exacerbating the overcapacity issue.
In the air freight industry, 2024 is expected to mark the return of classic seasonality patterns, as stated by Xeneta, a leading freight rate benchmarking platform. This follows a period of extreme volatility during and post-COVID-19, with air freight rates soaring and then plummeting. Despite this stabilization, the demand for air freight in 2023 remains down by -8% compared to pre-pandemic levels and is projected to grow only by 1-2% in 2024. Supply, conversely, is anticipated to grow by 2-4% in the same period. The muted consumer spending and ongoing global uncertainties suggest a subdued demand scenario for the coming year. A key risk highlighted for 2024 is the trend of freight forwarders leaning towards long-term contracts while relying heavily on the short-term spot market for volume acquisition, creating potential issues if rates increase.
Furthermore, the interdependence of air and ocean freight industries is critical. Approximately 97% of global containerized goods are transported by ocean, making the ocean industry’s performance pivotal for air freight dynamics. Any significant disruptions in ocean freight, such as geopolitical conflicts or natural disasters, could rapidly shift the landscape and affect air freight rates. The industry must remain vigilant to these potential ‘black swan’ events that could drastically alter the market.
2024 appears to be a crucial year for the shipping and air freight industries, with significant challenges and uncertainties. The alignment of fleet growth with trade growth, cautious consumer spending, and the balance between long-term contracts and spot market reliance will be key factors influencing the industry’s trajectory.