The global shipping industry grapples with increased blank sailings, especially in crucial East-West head haul routes. Current ocean freight reports underscore a severe space crunch, with carriers' utilisation rates reaching 95% for routes to Australia and New Zealand. As China's Golden Week on October 1st draws near, anticipate increased supply chain disruptions resulting from factory shutdowns and logistics challenges.
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The shipping industry, with its intricate web of routes and schedules, is currently facing a surge in blank sailings across major East-West head haul trades. These cancellations, occurring in routes like the Transpacific, Transatlantic, Asia to Northern Europe, and the Mediterranean, can have significant implications for businesses relying on timely shipments. In this blog post, we'll delve deep into the reasons behind these cancellations, their distribution across key routes, and the broader effects they might have on the global supply chain. Whether you're a shipper, a business owner, or just keen on understanding the industry's dynamics, it's crucial to grasp how these blank sailings could reshape the shipping landscape in the near future.
Between weeks 34 and 38, 36 sailings have been cancelled across the major East-West head haul trades. This accounts for 5% of the total 665 scheduled sailings. Here's a breakdown of where these cancellations are happening:
While many might think that demand is the primary factor influencing these changes, it's more about the supply. This will determine the stability of rates in the coming weeks. As we look ahead, we can expect supply normalisation with an annual fleet growth of about 2%. This growth will aid the dry market's recovery.
However, there's a twist: the scheduled delivery of new container vessels combined with reduced port congestion could put downward pressure on container freight rates. The container fleet growth is projected to rise to 7.3% in 2023 and 8.0% in 2024. This is a revision from previous estimates due to higher scrapping and slippage resulting from reduced earning expectations.
On the demand side, a negative growth is anticipated for the first half of 2023. However, a recovery in the latter half will lead to an overall demand growth of 1-2% in 2023, followed by a 5-6% increase in 2024.
In the short term, we don't expect significant changes due to regulations. This is mainly because of the lack of scrap candidates and the transitional phase of current regulations. But, things might change in the medium term. With limited investment in alternative fuels and increasing costs related to regulations like the Carbon Intensity Indicator (CII) and the EU Emissions Trading System (EU ETS), we might see a boost in scrapping activities. This could lead to reduced sailing speeds to meet regulatory requirements or save on fuel costs, especially post-2025.
The forthcoming long holiday in China in September will likely add to space pressures. During this period, 15 blank sailings will be contributed by non-alliance members across various trades.
Regarding reliability, over 95% of ships are expected to sail on time in the next five weeks, with the 2M Alliance projecting a 97% reliability rate.
Recent General Rate Increases (GRIs) since June, combined with capacity shortages due to water level restrictions at the Panama Canal, have caused spot rates to surge by 2.3% across East-West trades. This is the highest increase in recent weeks, but rates are now starting to decline. To counteract this decline, carriers might implement more stringent cancellation programs with short notice on blanks.
As of last week, the composite freight rate index has risen by 2.3%. However, it has dropped by 71% year-over-year. This is an improvement of 6% from the previous week. Currently, rates are 32% below the 10-year average, indicating a return to more standard prices. However, they remain 29% higher than the average levels in 2019, before the pandemic.
We've observed a rate drop this week, and this trend is expected to continue into the first half of September. Rates might rise again as shippers will try to push cargo before the long October holidays in China. It's advisable to place your bookings in advance to avoid any inconvenience.
China's Golden Week is more than just a holiday period. It's a time that can influence global supply chains, affecting businesses worldwide. By understanding its implications and planning ahead, businesses can mitigate potential challenges and ensure smooth operations.
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