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Container Lines Warned of Brutal Losses in 2024

Container Lines Warned of Brutal Losses in 2024

The Xeneta Shipping Index (XSI) has seen a significant 4.7% drop in October, landing at 158.5 points, marking a staggering 62.3% decrease compared to the same period last year. Tracking real-time global long-term contracted rates, the XSI has relied on older contracts originating from 2022 to sustain its recent performance.

At the TOC Asia event, Ashna Mishra, Global Lead of Shipping Strategic Engagement and Intelligence at S&P Global Commodity Insights, disclosed that discussions with shippers for 2023 revealed a reluctance to commit to long-term contracts. Instead, there’s a preference for shorter-term agreements like six-month or three-month contracts.

Looking ahead to 2024, Mishra highlighted the shippers’ inclination to sway negotiations in their favor, given the stagnant freight rates and the limited impact of carriers’ capacity management strategies on the market dynamics.

Xeneta’s latest data signals a potentially grimmer outlook for ocean carriers in 2024 than previously anticipated. Emily Stausbøll, Xeneta Market Analyst, noted that while older contracts with higher rates provided some financial cushion throughout 2023, major carriers have still reported substantial losses in Q3. Stausbøll predicted a worsening scenario as new contracts, expected to be signed at considerably lower rates, replace the existing ones.

The prospect of Maersk’s $27 million loss in earnings before interest and tax during the third quarter serves as a red flag for imminent challenges when the XSI further plummets. Stausbøll emphasized the forthcoming financial strain, citing the need for carriers to address these issues promptly to avoid potentially catastrophic losses in 2024.

Despite long-term contract rates holding at 39.5% above November 2020 levels, several leading liner companies have struggled to evade losses. Stausbøll warned that managing capacity would be the sole recourse for carriers to avert financial calamity, albeit an exceedingly challenging feat.

Alan Murphy, CEO and Founder of Sea Intelligence, painted a somber picture, projecting a prolonged period of massive oversupply in the sector, potentially extending until 2028. Anticipating lean years ahead, Murphy drew parallels to the pre-pandemic era, envisioning a recurring discourse dominated by oversupply concerns.

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Illustrating the gravity of this situation, Murphy pointed out that in February 2016, shipping a container halfway around the world from Shanghai to Brazil cost a mere $99 per TEU (twenty-foot equivalent unit), signaling a dire oversupply scenario.

The shipping industry faces turbulent times ahead, marked by declining indices, oversupply woes, and looming financial challenges, setting the stage for a precarious 2024.

MMJ News Desk
Author: MMJ News Desk

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