Supply chain disruptions likely despite falling trade

Shippers worldwide expect supply-chain disruptions this year due to fewer sailings, longer transit time, and strikes by workers in various transport segments, amidst demand-supply mismatches.
 

The global consumer sentiment is weak due to higher interest rates, tighter monetary conditions, higher energy prices and diversion of more funds for climate change mitigation and adaptation imperatives, higher military expenditure, refugee rehabilitation needs, coping with resurgence of Covid-19 virus, and so on. Any pick-up in the global economy later in the year may perk up the commodity prices but may not boost the demand for container shipping services significantly.  
 

After two years of revenue and profit growth, the shipping lines are facing losses on most sailings due to falling freight rates. With very few shipments from Pakistan, Bangladesh, and Sri Lanka, capacities of many container vessels are not fully utilised and so they are ready to carry cargo from Indian shores at very low rates. 
 

The freight rates from India to the relativly better-performing economies in the Far-East and Middle-East are hovering around $100 per container, whereas the freight rates to struggling Europe and North America are closer to $1,000 per container. Most less developed countries are stressed with debt burdens that constrain their consumption and demand for goods.
 

The falling demand for shipping services comes at a time when many new vessels will be delivered this year against orders placed earlier, adding to global capacity. Severe competition to utilise the available space might result in further fall in freight rates, forcing many carriers to retire older vessels, send several of them for maintenance, let some idle at the ports, suspend or merge shipping services on different routes and even opt for blank sailings i.e. skip scheduled sailings. 
 

To meet the commitment of the shipping industry to cut the carbon emissions, all vessels of 400 gross tonnage and above will be annually tested for exhaust emissions using the Energy Efficiency Existing Ship Index. Besides, the vessels will stream more slowly to cut emissions under the new climate disciplines. Lower demand may also mean fewer direct sailings and more halts at intermediate ports to pick up cargo, effectively resulting in longer voyage time to reach the destinations. 
 

In its annual report based on its surveys and interviews with various experts, Container xChange, a logistics technology company based at Hamburg, Germany, says about 73 per cent of the respondents expect workers strikes due to rise in prices putting pressure on workers’ disposable incomes. 
 

Labour dissatisfaction might grow in Europe and North America causing disruptions in global supply chains, says the report.

The report says container depots will be overstocked with excess idle inventories resulting in higher storage fees to discourage containers from staying past their deadlines. Empty container repositioning will remain a problem while more equipment will arrive in the system. Ports will face congestion with containers exceeding their dwell times causing increased demurrage and detention charges. Shippers with their own containers will struggle to get accurate quotes, space availability confirmations and reliable schedules, says the report.
 

Overall, the carriers, freight forwarders, container leasers, and port operators might bear the brunt of low rates and excessive competition as the markets will slowly align with the falling demands during 2023.The trade must factor in the possibilities of disruptions in the supply chains.   

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