Outlook ’24: Container Shipping at ‘Bottom of the Classic Boom and Bust Cycle’
Despite a prolonged freight recession driven by soft demand for container shipments and plunging carrier profits, the container shipping industry is bullish on prospects for 2024.
Seventy-four percent of supply chain professionals express optimism about the industry’s growth this year, according to a recent year-end survey from online container trading and leasing platform Container XChange. At least 20 percent expect stability and only 6 percent anticipate slower growth.
More from Sourcing Journal
The survey provided a more positive outlook than the container logistics platform’s analysis of consumer spending in November, when projections suggested that container demand was unlikely to bounce back for 12 to 18 months.
Christian Roeloffs, co-founder and CEO of Container XChange, said the optimism from most of the 1,200 respondents is based on the belief that the industry has “reached the bottom of the classic boom and bust cycle.”
As market sentiment goes, pricing is expected to follow—53 percent of respondents expect container prices to increase in the coming year, while 26 percent expect them to remain stable at current rates. Only 21 percent project prices to decline further.
Roeloffs noted that falling rates since 2022 have pushed container prices toward pre-pandemic levels in another sign of supply chain normalization.
“The container price volatility reduced considerably in the second half of 2023 and that is why the outlook was mostly positive about price developments in the future,” Roeloffs told Sourcing Journal.
Ironically, Roeloffs said rising geopolitical concerns and Red Sea issues also deliver “promising prospects for diversification of trade routes that led to a positive outlook for shipping professionals to foresee a better second half in terms of container prices.”
Spot ocean freight rates began ticking back up in recent weeks in the wake of the war in Gaza, increasing week-over-week by 9 percent to $1,661 per 40-foot container as of Thursday, according to Drewry’s World Container Index. From Nov. 30, prices have increased 30 percent from $1,382 per container across eight major trade lanes.
New trade routes could solve overcapacity problems
The survey also addressed the overcapacity issues plaguing the supply chain.
When asked how they’d manage container oversupply in 2024, 41 percent said they believe that exploring new markets and trade routes will be key to tackling the problem in 2024. Other popular tactics include scrapping old vessels (34 percent of respondents) and slow steaming strategies (19 percent).
Roeloffs noted that the fight for vessel capacity and containers began in 2020 as demand for household goods skyrocketed, resulting in the record carrier profits and earnings.
“As the demand kept growing, ordering of new vessels reached a new high. However, that pent up demand faded with time, as consumers went back to work,” Roeloffs said. “Now the situation was a demand deficit and oversupply scenario where shippers have abundant supply and few demand spikes.”
Forecasting and planning leads supply chain tech investments
As part of the survey, Container XChange also asked the respondents—who hail from shipping lines, container traders, freight forwarders, NVOCCs, shippers and procurement companies—about their supply chain technology investments in 2024.
The largest share of respondents said they plan to invest in technology for forecasting and planning (31 percent) followed by real-time visibility and tracking (24 percent), collaboration and connectivity (27 percent) and process automation (18 percent).
“Any kind of disruption brings uncertainty, which shakes the industry and its stakeholders,” Roeloffs said. “Planning and forecasting becomes key. For retailers, this means that they need to have visibility into the situation so that they are able to plan inventories going forward. Similarly, this also impacts contract negotiations that are underway in the first half of 2024. Effective decision making will require efficient visibility into the situation, which is where supply chain technology can serve a very important purpose.”
The CEO indicated that these types of investments are vital to supply chain success in a time when events like the Suez Canal diversions and the Panama Canal congestion persist.
“Technology can help in many ways, but we must know the right questions to ask,” Roeloffs said. “Times like these can propel a cost optimization outlook because of the rising operating costs resulting from these unforeseen events. This could encourage businesses to develop systems and processes that not only make business processes digitalized, but also propel them to take the leap of faith with the supply chain tech.”
Solve the daily Crossword
