Global Economic Outlook and US Inventory Trends

Global Economic Outlook and US Inventory Trends

• Projected global economic growth of 3.1% in 2024 sets an optimistic backdrop for the shipping industry, as increased economic activity typically correlates with heightened demand for freight services.
• The anticipation of a strong recovery in world trade growth in 2024, despite potential risks posed by the Red Sea Crisis, underscores resilience in global trade dynamics, potentially driving demand for shipping services.
• The observed decline in the US inventory-to-sales ratio to a slightly lower plateau reflects nuanced dynamics within the supply chain. Wholesalers reducing inventories while retailers increase them suggests a strategic shift that may impact shipping demand patterns.

Red Sea Crisis and Geopolitical Ramifications

• Ongoing Red Sea crisis, marked by active bombing raids on Houthi bases, creates heightened geopolitical tensions in a critical maritime region, potentially disrupting established shipping routes.
• Despite military efforts, the lack of reduction in Houthis’ vessel attacks suggests a persistent threat to maritime security, posing challenges to safe and efficient shipping operations.
• The container shipping supply chain’s robustness amid the crisis showcases the industry’s resilience, with mechanisms in place to adapt to challenging geopolitical conditions.
• While acknowledging a cost associated with the crisis, the situation is not deemed a disaster, highlighting the ability of the container shipping sector to navigate and mitigate challenges effectively.

January Cargo Spike and Trans-Pacific Outlook

• Market research indicates that Asian imports through US ports in the previous month totaled 1.54 million TEUs, ranking as the second-highest since August 2022.
• This figure was exceeded solely by the peak recorded in October 2023, with 1.56 million TEUs.
• Potential for a solid rebound in eastbound trans-Pacific trade in 2024.

Improving US Economy and Trucking M&A Activity

• Lower US interest rates and improved market conditions may stimulate trucking acquisitions in the US and Canada, impacting trucking service capacity.
• Increasing global M&A activity, exemplified by four $10 billion-plus deals, is likely to affect the overall landscape of the trucking industry.
• The timing and extent of decisions made by the US Federal Reserve, coupled with improvements in the freight market, will be crucial factors influencing the trucking M&A landscape, subsequently affecting trucking rates.

ONE and Wan Hai Align on Trans-Pacific Service

• Wan Hai Lines announces the revamp of its Asia-Pacific Service (AP1) to strengthen its network on the United States West Coast, replacing the AA3 service.
• The revamped AP1 service will be jointly operated with Ocean Network Express (ONE), deploying a total of seven vessels with a nominal capacity of 13,000 TEUs.
• Five vessels will be deployed by Wan Hai Lines, and Ocean Network Express will add two container ships to the service.
• The maiden voyage of the AP1 service is scheduled to commence from the port of Haiphong in Vietnam around the end of April or May 2024.
• The updated service covers the eastbound route, including Haiphong (Vietnam), Cai Mep (Vietnam), Shekou (China), Xiamen (China), Taipei (China), Ningbo (China), Shanghai (China), and Los Angeles (US).

Maersk and Hapag-Lloyd’s “Gemini Cooperation”

• The alliance formation follows Maersk’s breakup with the 2M Alliance in January 2023, indicating a strategic response to the need for a new collaborative framework.
• The formation of the “Gemini Cooperation” with a fleet pool of 290 vessels and 3.4 million containers (TEU) demonstrates a strategic allocation of shipping capacity between Maersk and Hapag-Lloyd.
• Maersk deploying 60% and Hapag-Lloyd deploying 40% of the fleet indicates a balanced approach in capacity sharing.
• Customers can expect changes in service quality, transit times, and access to well-connected ocean hubs, with potential implications for freight costs and overall market competitiveness.
• This movement highlights not only the creation of a new alliance but also signals adjustments in the structure of existing alliances, reflecting a dynamic and evolving industry landscape.

Container Shipping Overcapacity and Red Sea Disruption

• Anticipated global container capacity expansion of 10% in 2024 signifies a notable increase in available shipping space.
• Projected container volume growth at 3-4% reflects a measured pace compared to the capacity expansion, indicating potential challenges in aligning supply with demand.
• The Red Sea disruption, absorbing 6-7% of global capacity due to extended transits around southern Africa, highlights the operational impact of geopolitical disturbances on maritime routes.
• Despite challenges, the situation is regarded as a “blessing in disguise,” as circumnavigating Africa necessitates a substantial fleet, potentially mitigating excess capacity concerns and influencing shipping dynamics.

Industry Trends