The shipping industry has been riding high for the past few years, with unprecedented freight rates and profits. However, it appears that the party may be coming to an end as shipping lines face a challenging year ahead.The Covid-19 pandemic and subsequent supply chain disruptions caused a surge in demand for shipping services, leading to a massive rise in freight rates and profits. But as the world begins to recover and the supply chain stabilises, the shipping industry is faced with a new reality – the era of record-breaking profits and freight rates is over, and shipping lines are bracing themselves for what's to come.Simon Heaney, senior manager of container research at independent maritime research consultancy Drewry, is predicting losses of around $10 billion in 2024 for carriers. “Most of the lines have built up reasonably good cash buffers and should be able to cope with the coming losses, but it will be a harder landing than what was expected.”This comes after a forecast of a 59.8% reduction in global freight rates for 2023. “We expect that the rates will drop again in 2024 by nearly 14%,” said Heaney, “followed by a drop of 13.7% in 2024. It has been clear for a long time that the carriers’ party is winding down, with only the soon-to-expire lucrative contracts keeping profits at their current elevated levels.”He said once those longer-term deals were signed at lower rates later this year, analysts would be able to get a clearer picture of where the lines stood.“The expiring contracts will, however, provide some overhanging into 2023 figures, and so we continue to forecast that lines will make a profit this year, which is currently estimated at around $16.5bn.”According to Heaney, ultimately the story in the market at present is one of correction.“After two years of unprecedented volatility and extreme profits, container shipping’s super-cycle is now coming to an end, with significant uncertainty regarding what the “new normal” will look like. What is clear is that most of the factors that contributed to the colossal surge in sea freight rates over the past three years have vanished. It is also critical to recognise that those rates would never have been sustainable, and what we are seeing is a calming down of the market.”He said world container port throughput in 2022 had ended slightly better than anticipated, growing at 0.5%. This was expected to remain in 2023 at a similarly low level, currently estimated at around 1%.Heaney emphasised that different regions would experience the “calming down” effect of rates differently, depending on when their super-cycles started and ended. High interest rates and sticky inf lation would continue to be a challenge impacting the container business throughout the coming year.
