Global trade is undergoing significant changes, impacting the shipping industry as it grapples with capacity constraints. The rationalization of inventories, economic stagnation in the US and Europe, geopolitical concerns, protectionism, and supply chain reassessments have led to a contraction in global trade and lower growth projections for the foreseeable future. However, the second half of 2023 is expected to bring stronger performance as consumer spending on goods normalizes, inventories decrease, and wages rise.
The distribution of trade activity across the world is uneven, with intra-Asian traffic and the Middle East and Africa outpacing the global average. Longer shipping routes resulting from Russian sanctions have increased shipping demand, particularly in liquid bulk transportation. Tanker shipping has been positively impacted, with Russian oil flowing to China and India instead of Europe. Meanwhile, container shipping, which experienced a historic boom during the pandemic, is facing challenges as demand adjusts and port congestion eases.
Despite rising general price levels, shipping companies have benefited from lower fuel costs. Heavy fuel oil prices have dropped by approximately 30% compared to the previous year, while low-sulfur fuels like VLSFO and MGO have experienced more significant decreases. However, the oil market remains strained, and price risks are skewed to the upside.
Tanker shipping, especially in the liquid bulk market, continues to enjoy strong fundamentals. The global demand for oil products, along with the recalibration of trade routes due to Russian sanctions, has contributed to tight market conditions and elevated rates. In contrast, dry bulk shipping, reliant on global industrial activity, is experiencing a slowdown due to faltering consumer demand and higher interest rates.
Bulker trades have been supported by domestic demand in China, driven by the government’s stimulus measures. However, coal demand may decline if Europe reduces its reliance on Russian gas, while grain trade has improved since the disruptions caused by the blockage of Black Sea ports in 2022.
Car carriers have found success in the niche market of shipping due to the production recovery and the rise of electric vehicles. Asian brands like Hyundai/Kia and BYD are gaining market share globally, benefiting car carriers such as Höeghs and Wallenius Wilhelmsen. However, bulk rates have weakened due to slower demand growth, limiting the potential for rate increases in 2024.
The shipping industry is also facing potential challenges from environmental regulations. The introduction of carbon pricing under the EU Emissions Trading System (ETS) could significantly increase fuel costs for intra-European journeys, potentially pushing up costs by more than 50%.
In conclusion, the global shipping industry is navigating changing trade dynamics and capacity constraints. While certain sectors, such as tanker shipping and car carriers, continue to perform well, others, like container shipping and dry bulk, face challenges. Environmental regulations, particularly carbon pricing, pose additional cost pressures for the industry.
