This coupled with increased availability of vessels is expected to further lower freight costs, which have fallen by about 50 per cent in recent months after a huge surge in post-pandemic disruption.
The shipping industry trends are pegged on weakness in the global economy, particularly in China, the USA and Europe, which are seeing a drop in demand due to a spike in inflation, and a cost-of-living crisis because of the war in Ukraine.
There has been a reduction in volumes on the world’s key trading routes, industry players say, where both finished and intermediate goods being transported on large container ships around the world has gone down.
According to a market report by Container xChange, a global technology company that offers container trading and leasing platform, oversupply of containers has caused depots to run on almost 90 per cent utilisation.
This it says is making it difficult for depots to move the containers around and eventually makes depots less efficient.
“This is a global phenomenon now. And that is a struggle for the NVOCCs (Non Vessel Owning Common Carrier) and shipping lines who want to open new markets,” Container xChange cofounder and CEO Christian Roeloffs says.
With this, shipping lines are taking a cautious approach and deploying a wait and see strategy, therefore, holding off the selloffs of containers.
The International Monetary Fund (IMF) projects global growth to fall from 3.4 per cent in 2022 to 2.9 per cent in 2023, and then rise to 3.1 per cent in 2024, a scenario that is likely to see low trade volumes.
“Growth is projected to start recovering in 2024 and return to a subdued trend rate of around one and a quarter, reflecting adverse demographics and low productivity growth. Risks are skewed to the downside given uncertainties related to the war,” IMF notes.
World Trade Organization (WTO) expects the global merchandise trade volume to grow by one per cent in 2023, down from its earlier forecast of 3.4 percent.
One of the major risks remains the rising interest rates to tame inflation that could trigger a recession in some countries, applying downward pressure on imports.
The Shippers Council of Eastern Africa (SCEA) however yesterday said the supply demand curve will shift with the Chinese New Year, which is now over, and opening up of the Chinese ports post the Covid lockdown in 2022.
“We expect with stability of the economies and increased transnational trade pact, volumes will rise so will demand,” SCEA chief executive Gilbert Langat told the Star on telephone.
However with the current high container availability ,which is compounded by the gap occasioned by lack of manufacture of new containers and repairs during Covid lockdown that span about 18 months, costs are expected to reduce, Langat said.
Most of the depots are with full capacity especially exports.
“The same can be said of our depots in Kenya and the region. However the holds are more empty containers than exports about 80 per cent. So we are import oriented. That is a gap that the government and private sector are trying to address through export strategy for fresh produce, fruits and vegetables by sea and sustainable green logistics,” Lang’at said.
The shipping industry has recorded increased vessel availability with larger ships being deployed to African routes, including Mombasa and Dar es Salaam, which were being fed by feeder vessels last year, as shipping lines focused on key routes of China-Europe and the US.
During the period, international freight charges went up by between 20–25 per cent, with shipping a container to Mombasa then costing up to $12,000 (Sh1.5 million).
This eased to an average $7,000 (about Sh900,830) last year as supply to the markets increased.
It has further dropped by almost a half to between $3,500 (Sh450,415 ) and $3,800 (Sh 489,022, which comes a relief to local manufacturers and traders who import raw material and finished goods, and those in the export business.
Dubai-based global logistics company DP World foresees freight rates dropping by a further 15 per cent to 20 per cent as demand slows.
Shipping group Maersk has also warned of slowing demand for transport and logistics as a global recession looms.
It foresees global container demand falling by up to five per cent this year, citing an unfolding economic slowdown expected this year.
“Freight rates are coming down faster than expected and the global container market will be broadly flat to negative in 2023,” Maersk says in an outlook report.
However, the weak shilling to the dollar remains a challenge for imports, which have to spend more to get the US currency for payments.
“The availability of vessels, increased container supplies will ease rates. However, factors like the appreciation of the USD against other global currencies has an effect on the rates,” Langat said.
