At IANA meeting Jensen says ocean freight rates will continue downwards but stay above 2019 levels

Speaking at the Intermodal Association of North America’s (IANA) Intermodal Expo on September 13th at Long Beach, California, Lars Jensen, CEO and partner, Vespucci Maritime based in Copenhagen, Denmark expects ocean container shipping rates to continue to decline in 2022 but predicts that they will eventually end up above 2019 levels.

Jensen noted that there is an overcapacity situation in the container market at the present time: “A lot of new players came into the market in the last two years with small vessels and high charter rates. Some of these will trigger a price war that will drive rates down.”

A second reason Jensen believes rates will decline is that some shippers feel they were over charged by ocean carriers during the supply chain crisis of the last two years: “Some shippers over the last two years found themselves forced over to the spot market at extremely high rates. They, I think this is the diplomatic term, are now looking for payback. This is not true for all shippers. These shippers will honor their contracts now that the tables have been turned. For a lot of other shippers, this will not be the case and they will be cutthroat in finding the best deal. Long term, however, I think you’re going to find freight rates that are sustainability higher than before the pandemic. But in the immediate term, I think you will find freight rates that will go below where they were supposed to stop, so possibly back to rates at 2019 levels.”

Jensen added that new entrants to the container market should probably be developing their exit strategies right about now: “I see two possible outcomes. One, take the money and run. But if you try and stay in the market with ships that are too small and with extremely high charter rates, that’s a losing proposition.”

Bigger Box Ships

Jensen is predicting a major upsizing of container ships being deployed in world markets which he believes means that smaller ports will be losing business as the emphasis on ocean carrier sailings continues the trend of focusing business at larger ports with big ship container handling facilities: “What you are going to see in the next few years is an upsizing of ships coming to the U.S. West Coast. So, staying with a smaller ship is not a viable proposition. The upswing is not going to be a problem for massive ports with many calls per week, but for the smaller ports, this is going to be a problem because you are going to have extreme fluctuations in cargo volumes over the course of the week. This suggests a shakeout in ports handling container business. This is very difficult for a smaller terminals to support.”

He predicts that the capacity problems that adversely impacted U.S. agricultural exporters will gradually ease and possibly disappear in 2023: “I think the practices of ocean carriers will go back to normal. Sometime in 2023, the situation should go back to normal for the agricultural exporters. The root cause of the problem for the exporters in the last two years was a lack of empty containers in Asia. Now we are getting into an exact opposite situation. So, the carriers are no longer desperate to move the containers back to Asia as soon as possible. That means that the dynamics the exporters will be facing will be coming back to normal. My position is the problem that the exporters had with the carriers was a temporary problem. I fully understand that when somebody said to the exporters that they face a temporary situation of 2-3 years that does absolutely no good for your business, but that is the underlying reality.” Jensen said that the current investment that ocean carriers are making into logistics and freight forwarding is probably not a permanent state of affairs. This was motivated by the huge profits that the ocean carriers have made in the last few years, directing some profits into land-based operations: “There has been a cycle where the carriers want to go into logistics and then they decide to go back to their core competency and spin off logistics. So, back and forth we go. What is different this time is the amount of cash the carriers are sitting on allows them to take this cycle a lot further. I don’t expect the carriers to pull back from that strategy for the next couple of years.”

Railroad Service

During an IANA transportation and logistics panel discussion on September 13th, Larry Gross, president and founder, Gross Transportation Consulting told IANA participants that service provided by U.S. railroads needs to improve and he is hopeful that the railroads are now committed to this end: “I think that the railroad’s service will recover once we get some breathing room. We need some breathing room on the volumes in order for everything to get reset. I think there is an argument to be made that PSR (Precision Scheduled Railroading) reduced resilience and reduced the ability of the system to accept the surge in volume. We are seeing the consequences of this right now with the shortage of trained, operating personnel. That’s all going to get sorted out overtime. One of the great questions is how long that is going to take and that certainly will not be helped by a railroad strike. That could set things back weeks or months.”

Truck Driver and Chassis Shortages

Tim Denoyer, vice president and senior analyst, ACT Research spoke about trends in the trucking industry and noted the following: “Electric & autonomous technology is a real interesting niche” for drayage trucking. He notes electrification can cut diesel fuel costs in half. Driver shortages have been a long-term complaint, but the situation seems to have improved in 2022: “The situation has improved this year as a result of better pay and more people are going to work as truck drivers.”

The chassis shortage that impacted transportation in 2021 appears to be easing: “Chassis production is ramping up very significantly this year due to bids that went out last year. We produced 25,000 chassis last year. This year’s forecast is for 60,000 new chassis to be added to the fleet. … We’re going from shortage to better supply.”