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Home/News/Maritime/Supply chain chaos and port gridlock could drag on into 2023
American ShipperContainerMaritimeNewsShippingSupply ChainsTop Stories


SUPPLY CHAIN CHAOS AND PORT GRIDLOCK COULD DRAG ON INTO 2023


ALPHALINER: MARKET CORRECTION FORECASTS ‘REPEATEDLY KICKED DOWN THE ROAD’

Greg Miller, Senior Editor Follow on Twitter Wednesday, February 2, 2022
4 minutes read
(Photo: Jim Allen/FreightWaves)
Listen to this article

0:00 / 6:41
1X
BeyondWords

The timetable for a container shipping correction keeps receding into the
distance, which is either very good news or very bad news, depending upon which
side of the market you’re on.

The first predictions for a downturn were for October 2020 after China’s Golden
Week holiday. Then it was post-Lunar New Year 2021, then mid-2021, then the end
of last year, then post-Lunar New Year 2022.

With Lunar New Year 2022 now underway and container freight rates, ship charter
rates and port congestion still at or near all-time highs, timing sentiment is
turning to 2023.

“Forecasts for a market correction have been repeatedly kicked down the road,”
said Alphaliner on Tuesday. “A growing consensus now suggests that the current
supply chain chaos will last at least throughout 2022.”

Confidence in the shipping boom’s duration has propelled the sale-and-purchase
market for container vessels to record levels. “The number of container vessels
changing hands reached an all-time high in 2021 after shipowners appeared
willing to pay almost any price to secure tonnage,” said Alphaliner, which noted
that the growing consensus on longer market strength may “justify [2021]
purchases with delivery deferred to this year.”

Alphaliner reported that there were 572 container ships sold last year
“equivalent to a breathtaking 1.94 million TEUs [twenty-foot equivalent units],”
26% higher than the prior annual record in 2017, a year when sales were inflated
by the spectacular collapse of ocean carrier Hanjin.



It’s not just the S&P market. In the charter market, rates have risen to fresh
all-time highs in 2022, with “a growing trend toward forward fixing far into the
future, with some vessels extended or fixed nearly one year before being
delivered,” said Alphaliner.

Evidence of industry confidence in 2023: MSC reportedly extended its charter of
the 6,493-TEU MSC Bosporus for five years at $50,000 per day, with that
extension not even beginning until this December. Alphaliner also reported that
MSC extended contracts for several 8,500- to 9,500-TEU ships owned by Danaos
(NYSE: DAC), with some only taking effect next year. Danaos confirmed that it
has extended some charters with start dates as late as April 2023.


STRONGER FOR LONGER

Matthew Cox, CEO of Matson (NYSE: MATX), said last month that he expects
trans-Pacific congestion and elevated consumption trends “to remain largely in
place through at least the October peak season and elevated demand for our China
service [to remain] for most of the year.”

During a recent analyst panel presented by Capital Link, DNB analyst Jorgen Lian
said, “Things are looking stellar and they continue to be looking strong for
longer than we thought.”

Lian pointed to “substantial fleet growth coming to market in 2023 and 2024,”
but added: “We’ve been playing around with an idea for a bull case: If you don’t
see the congestion issues easing before you get these [newbuild ship] deliveries
in 2023 and 2024, you have 15% more capacity waiting in queue in those same
ports, and then all the sudden it becomes a port issue, not a shipping issue.”

That’s already the case in the current cycle, Lian said. “It’s not all about the
shipping balance. It’s about what goes on with the land-based side of
logistics.”



One of the earliest proponents of the congestion-into-2023 thesis was ocean
carrier Zim (NYSE: ZIM). What once sounded self-serving now sounds more
mainstream. 

During a conference back in August 2021, Zim CFO Xavier Destriau argued that the
overcapacity threat from newbuilds delivering in 2023 was low, partially because
“congestion of land infrastructure, particularly in the U.S., will continue to
adversely impact fleet efficiency. Operational constraints in the U.S. are
likely to persist,” and “landside bottlenecks” would “partially offset the net
fleet growth reflected in the increased orderbook,” he maintained.

Index: 100 = January 2019. Chart: FreightWaves SONAR (To learn more about
FreightWaves SONAR, click here.)


WHAT IF THERE’S NO SWITCH TO FLIP?

The Biden administration and the ports continue to focus on ways to alleviate
the supply chain crunch. The question is whether any significant progress is
possible until U.S. import demand falls substantially.

“There are a couple different theories,” commented Flexport Chief Economist Phil
Levy in a recent interview with American Shipper. “One is that we have this
sustained, elevated demand that’s driving this. That’s my view. Another is what
I call the ‘who forgot to flip the switch?’ theory — that there’s something
wrong with supply chains and somebody was asleep and if we just flipped the
switch, it’ll all be better. That we just have to solve these temporary supply
chain issues.”

If the sustained-demand theory is correct, and if there is no economic downturn
in the U.S. that slashes demand in 2022, the argument that supply chain
pressures and port congestion will persist into 2023 appears increasingly
credible. That, in turn, implies a lengthier period of much higher transport
costs and much longer transit times for cargo shippers.

The U.S. port congestion situation is much worse now than it was a year ago.



At the ports of Los Angeles and Long Beach, which handle 40% of U.S. imports, 40
container ships were idling offshore and waiting for berths on Feb. 1, 2021. A
year later, there were 101.

Chart: American Shipper based on data from Marine Exchange of Southern
California

The LA/LB queue numbers plateaued in January, averaging 101 per day and peaking
at an all-time high of 109 on Jan. 9. (Update: By Feb. 8, the queue had fallen
to 78 ships, a significant drop from January but still up 160% year on year; see
story here).

Given how substantial the backlog remains, fully clearing the LA/LB queue prior
to 2023 may be unrealistic. Last year, the queue fell by 30 ships between the
beginning of February and the third week of June, but after that, seasonal
imports inexorably pushed up the queue tally into the end-of-year holiday
period.

Click for more articles by Greg Miller 

RELATED ARTICLES:

 * Glimmer of hope: Has the ship gridlock off ports finally peaked?
 * Container shipping has greatest quarter ever — with more to come
 * Los Angeles imports slump further as congestion throttles volume
 * Imports take ‘dramatically longer’ to reach US as bottlenecks bite
 * New year brings new all-time high for shipping’s epic traffic jam
 * New index measures supply chain pressure — and it’s really high
 * ‘Tricky time’ for shipping stocks: Course corrections ahead?
 * Container ship owners see boom lasting through 2022







Tags
Alphaliner container shipping Danaos Flexport FreightWaves Ocean Greg Miller
Matson ocean container shipping Ocean shipping Port of Long Beach Port of Los
Angeles Shipping shipping stocks Zim
Greg Miller, Senior Editor Follow on Twitter Wednesday, February 2, 2022
4 minutes read

Facebook Twitter LinkedIn Reddit Share via Email


GREG MILLER, SENIOR EDITOR

Greg Miller covers maritime for FreightWaves and American Shipper. After
graduating Cornell University, he fled upstate New York's harsh winters for the
island of St. Thomas, where he rose to editor-in-chief of the Virgin Islands
Business Journal. In the aftermath of Hurricane Marilyn, he moved to New York
City, where he served as senior editor of Cruise Industry News. He then spent 15
years at the shipping magazine Fairplay in various senior roles, including
managing editor. He currently resides in Manhattan with his wife and two Shih
Tzus.
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