Sally Maritime - 2023 and Beyond: What to Expect for Shipping and Deliverability

2023 and Beyond: What to Expect for Shipping and Deliverability

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The current disruption in the supply chain obviously has everyone’s attention. However, the current situation is not permanent, and the pandemic-induced bottlenecks in the system will eventually work themselves out. Hence, it is prudent to contemplate the nature of the market in 2023 and beyond already now, especially since some shippers are already negotiating freight contracts stretching for both two and three years. Basically, there are elements in the market right now which are temporary, and there are elements which will lead to permanent changes. Let us start by contemplating the more temporary elements.

First of All, There is The Issue of The Bottleneck Problems Globally

Bottlenecks have been caused by a variety of factors such as major surges in demand, ports closures, shortages of truck and chassis, shortage of labor due to Covid-19, etc. Whilst these problems loom large presently they will eventually be resolved. Global demand in 2021 was only 5-6% higher than in 2019. This means that the amount of ships and containers in the world is not a major problem. The major problem is the port and hinterland congestion tying up these assets for far too long. As the inland logistics problems gradually gets resolved, the operations will come ack to normal.

Given the high likelihood of additional curveballs in 2022, it is more realistic to assume full normality is not restored until we are into 2023. But this also means that shippers need to plan from the perspective that 2022 is all about contingency planning just as we saw in 2021 – but from 2023 it should increasingly be about gradually bringing their supply chains back into a normal shape.

But This Bring Us to The Second Part, Because What Does “Normal” Mean In This Context?

From an operational perspective shippers should expect schedule reliability to revert back to pre-pandemic levels when it comes to vessels arriving on time. However, there are two other operational elements which must be carefully noted.

One Element is The Prospect of Sailing Vessels Slower

Bunker fuel prices for low-sulphur fuel is setting new records these days and match the peaks seen for old heavy fuel in 2012. Back then, carriers slowed vessels down to alleviate the high fuel costs and this might well happen in 2023 as the bottlenecks are removed. Furthermore, 2023 sees the introduction of new environmental legislation under IMO2023 rules. This forces shipping lines to improve fuel efficiency of the individual vessels and can likely also lead to more slow-steaming. Shippers might therefore experience that reliability becomes normal, but transit times might be slightly longer than the pre-pandemic normality.

The Element Relates to Blank Sailings

Right now, all blank sailings in the market are basically because the carriers do not have the necessary vessels to deliver on their planned schedules. In itself, this is caused by the bottlenecks. When the bottlenecks are removed, blank sailings once more become a yield management tool for the carriers. They were already beginning to do this to larger extent in 2018-19 and we saw how they used it with great effect in the spring of 2020 where they managed to keep rates stable in the early phase of the pandemic where demand suddenly dropped sharply. Shippers should therefore expect blank sailings to be a normal part of the market in 2023.

Hence, all in all, shippers should start preparing for the outlook that 2023 and beyond may well see operational performance restored, albeit with longer transit times and more blank sailings, but they also need to plan in such a way that their business models are robust in an environment where rates are permanently at levels seen in late 2020 or early 2021 – and those levels were substantially higher than in 2019.

Source: 2023 and Beyond: What to Expect for Shipping, Rates, and Deliverability (morethanshipping.com)

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