The container shipping industry is plagued by unpredictability. Attendees of the yearly TPM conference in Long Beach get together year after year to talk about the unanswered questions that appear to envelop the future. Everyone is wondering: who will be more worried this time around—shippers or carriers—given the market’s continual ups and downs?
This climate of constant uncertainty is a result of a sector that is closely linked to the unpredictability of the global economy, not a sign of a sick industry. It’s important to avoid becoming bogged down in the details of forecasting in order to solve this mystery because aiming for exact perfection frequently backfires. Predictions are important, but after a while they become a pointless task of optimizing unknown decimal places.
Rather, the way through these dangerous waters is to recognize and classify risk and then use that knowledge to build a strong plan of action for when the unknowns become known.
By projecting forward to 2024, we can identify three main risk areas related to market projections.
Speculations on Future of Supply and Demand
The simplest—yet most complex—aspect is supply and demand prediction. At first glance, it appears simple enough: evaluate the capacity being provided, take into consideration vessel scrappings, and compare it to the demand for containers that is tied to the state of the world economy. But the nuances really do matter. It is possible to modify capacity dynamics by slowing down or stopping a vessel, and the conventional wisdom that the demand for containers reflects the growth of the world economy has been challenged, particularly in the wake of the epidemic. The so-called GDP multiplier has fallen below parity in recent years. It’s unclear if this is a new norm or a rippling effect of the pandemic. This is a familiar landscape for the industry, marked by cyclical downturns and the looming question of when carriers will idle more capacity, notwithstanding these constraints.
A New Regulatory Framework
The second component presents the difficult challenge of predicting carrier behavior shifts in the context of changing regulatory environments. In contrast to quantitative modeling, this activity entails a complex endeavor: trying to decipher carriers’ intents. Carriers will review their operations in light of factors such as the introduction of Europe’s emissions trading system (ETS) and the removal of the EU’s Consortia Block Exemption Regulation (CBER) antitrust exemption.
While assessing the goals of EU regulators, they must decide how to reorganize their networks to lessen the effects of these regulatory reforms. For carriers, this lack of regulatory certainty poses a serious problem as it’s unclear if they can carry on with business as usual. Because of this, it is difficult to forecast network configurations into April 2024, which raises issues with partnerships, direct vs transshipment services, transit times, and port rotations.
Planning for Unexpected Circumstances
Predicting the possibility of significant deviations from the baseline projection constitutes the third and last component.
Geopolitical conflicts may lead to the temporary shutdown of vital marine routes, such as the Suez Canal during the Gaza War. or intensifications in other unstable areas like the South China Sea or the Strait of Hormuz. The list of unknowns is further increased by environmental issues like shifting water levels in the Panama Canal or cyberattacks that take down important ports and carriers.
Because these are frequently low-probability but high-impact scenarios, most shippers find it impractical to create comprehensive strategies for every possible outcome. Rather, the important thing is to take what we’ve learned from 2020–21 and develop the flexibility to quickly adjust in the event that any of these things happen. In the container shipping business, uncertainty may be a constant companion, but it can be managed and even used to one’s advantage if the proper plans and techniques.
Should you have any questions regarding this and how it could impact your shipments, please reach out to our team today.
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