Wednesday, April 24, 2024

Still no plain sailing for NZ exporters

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Downunder shipping costs slow to follow global easing.
A record number of new and huge container ships are set to hit the world’s oceans in 2023.
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Shipping costs to and from New Zealand and Australia remain elevated, even as costs between the major markets of China, the United States and Europe have almost returned to pre-covid levels.

“What we’re hearing is that rates are easing, but not a lot, and certainly not as much as we’re seeing on other lines,” said Susan Kilsby, an agriculture economist at ANZ Bank NZ.

The Drewry world container was stable at US$2132.49 (about $3330) per 40-foot container on January 12, 79% below the peak of US$10,377 reached in September 2021, although it’s still 50% higher than the average pre-pandemic rates of US$1420 in 2019.

Even on the major routes, shipping rates vary widely – for example, the rate between Shanghai and Los Angeles is US$2092 and the rate from Shanghai to New York is US$3612, while the rate from Shanghai to Rotterdam is US$1888.

AFT Pharmaceuticals managing director Hartley Atkinson put some numbers on local rates, saying his company’s shipping costs from Australia to India peaked at about A$26,000 (about $28,300), and have now eased to about A$22,000 when the pre-pandemic cost for a 40-foot container was about A$9,000. AFT exports to 51 countries.

Kilsby said the higher Downunder rates reflected a lack of competition and the lower volume of shipping available.

But with weakening demand globally, and port efficiencies improving, “the overall dynamics are improving considerably between supply and demand”, and shipping rates should improve, she said.

Catherine Beard at ExportNZ also expects shipping costs to decline further.

“My understanding is things are starting to come right – the trend is in a better direction.”

During covid, the combination of post-lockdown demand surges for goods, labour disruptions at ports and widespread disruption of global supply chains sent freight costs skyrocketing.

In August 2021, the Financial Times reported there were more than 350 container ships around the world lying at anchor waiting to get into congested ports, including five containerships sitting off NZ ports.

It’s possible another factor could put pressure on shipping prices – a record number of new and huge container ships are set to hit the world’s oceans in 2023, according to Hamburg, Germany-based Container XChange.

“At present, the containership orderbook reportedly stands at 7.1 million TEUs (20-foot equivalent units),” Container Xchange said earlier this month.

“Most of the tonnage on order will be delivered in 2023 and 2024.”

Statista.com estimated the total global capacity of container ships at the end of 2019 was about 23 million TEUs.

Some of the additional ships will be replacements for existing ships that no longer meet environmental standards – Container Xchange said very few ships were scrapped during the pandemic but that carriers began disposing of their old fleet in 2022.

“In 2023, the capacity growth in the carrier industry will be high as more equipment and vessels will join the global fleets,” it said, adding that it expects consumer demand to continue to wane for a while and that the Chinese New Year shutdown of factories in China will add to the slump. The Chinese New Year festivities began on January 22.

“Two, almost three exceptional years for carriers are definitely coming to an end. They will have to adapt back to lower margins due to a different supply and demand balance,” it said.

“Many customers, forced into high-cost contracts during the upcycle, will come for revenge in the downcycle,” it said.

Shipping lines may also face regulatory pressures after a period in which they reported massive increases in profits.

Maersk, the Denmark-based firm that was the world’s largest shipping company until last year, reported a record US$8.9 billion net profit for the September quarter, taking its bottom line for the first nine months of 2022 to US$24.3b.

The largest shipping company was now the Swiss-based Mediterranean Shipping Company, which is privately owned.

But the carriers can also be expected to take a number of actions to try to manage capacity and ensure their profitability, including retiring older and smaller vessels and the practice of “blank sailings”, which is omitting some ports from their regular schedules, a practice widely used to manage supply and demand. 

Mainfreight managing director Don Braid said most of the new ships are larger vessels in excess of 20,000 TEUs with carbon-friendly, lower-emission engines. They will replace older vessels that do not comply with new emissions laws.

He isn’t convinced there will be an oversupply of shipping. 

“Depends on who you listen to, I think,” he  said. “It will also depend on freight volume and if this recovers, particularly ex-China.”

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