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HSBC (HSBC) latest research report stated that due to the faster-than-expected freight rate decline and the easing of port congestion, spot freight rates for container transportation may drop to the freight level in 2019 as early as the end of this year.
On Wednesday, the global bank lowered its demand forecast for 2023 and raised its capacity supply forecast for 2022-2024 to reflect that the easing of port congestion is releasing tethered capacity to the market.
"So we now expect the Shanghai Container Freight Index (SCFI) to bottom out in mid-2023 and the shipping industry's profitability will bottom out in the second half of 2023." Parash Jain, head of research at HSBC Shipping, Ports and Asia, wrote in a Global Container Shipping Report. Previously, it predicted that sea freight rates would bottom out in 2024.
Jain pointed out that since the end of July, the SCFI index has fallen by 51%, down 7.5% per week, and the current spot freight rate is far lower than the contract freight rate signed at the beginning of the year, especially the trans-Pacific route. "We believe that demand is lower than expected, faster congestion relief, and price competition for marginal cargo has led to this decline."
In early October, container ship orders had reached nearly 7.1 million TEU. Alphaliner data shows that new ships with a total capacity of 2.34 million TEU will be delivered next year, compared with 2.84 million TEU in 2024. The average delivery volume in the two years was 2.6 times the average of the past 20 years.
According to Drury, these new capacity combined with the potential capacity injected into the market after the improvement of port congestion, the effective net growth of fleet capacity in 2023 will be as high as 11.3%. Meanwhile, Drury expects demand to grow by only 1.9%.
Jain pointed out that in this situation of supply and demand imbalance, freight rates will continue to fall. "At a 7.5% weekly decline, spot freight rates may reach the average spot freight level in 2019 by the end of 2022. We expect capacity constraints to appear clearly at this level, especially when freight rates are below cost."
As freight levels drop so sharply, the HSBC report pointed out that there are "significant downside risks" for shipping companies' profit levels in the next two years. The bank expects shipping companies to remain flexible in the third quarter of this year, but starting in the fourth quarter, profits will decline and continue until 2023.
In September this year, HSBC estimated that overcapacity and a decline in demand would lead to a decline in profits of shipping companies by more than 80% in the next two years.
At the same time, Jain pointed out that the third-quarter results of shipping and logistics companies and the potential changes in full-year performance expectations may provide clues about whether shipping companies can defend contract freight rates in renegotiation.
In addition, HSBC said in its report that capacity will resume after the first golden week of October, or the carrier will suspend sailing to extend to the fourth quarter, which may determine whether freight will stabilize soon.
According to Sea‑Intelligence’s latest report yesterday, in the 41-43 weeks, the capacity of shipping companies deployed significantly decreased. However, even though the average capacity of trans-Pacific routes dropped by 26%-31%, and the capacity of Asia-Europe routes dropped by 19%-27%, its freight rates still fell sharply.
In addition, Alphaliner recently said that port congestion is no longer enough to prevent a sharp drop in container freight rates. Spot freight rates in Shanghai-Nordic fell 48.5% in the third quarter, although port congestion in Europe is still far from being resolved.
Source: Souhang.com
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