Shipping Costs in 2023: Trends and Challenges
Shipping costs are one of the most important factors affecting the profitability and competitiveness of businesses that rely on international trade. However, shipping costs are also subject to various uncertainties and fluctuations due to supply and demand imbalances, geopolitical risks, environmental regulations, fuel prices, port congestion, labor shortages and other factors.
In this article, we will review some of the trends and challenges that are expected to shape the shipping industry in 2023 and beyond.
Container Shipping: The container shipping sector has experienced unprecedented volatility and disruption since 2020 due to the COVID-19 pandemic, which caused a surge in consumer demand for goods, especially e-commerce products. This led to a shortage of containers and space on vessels, resulting in record-high freight rates and delays. According to Freightos (n.d.), ocean freight rates fell 21% to $2,607/FEU in November 2022, its lowest level since December 2020, as demand continued to slow and congestion levels decreased. However, this rate is still 72% higher than a year ago and double its 2019 level. According to Statista (2022), container freight rates oscillated dramatically between January 2019 and November 2022. The year 2021 saw an especially steep increase in global freight rates, reaching a record price of $8, 796/TEU in August 2021. Fitch Ratings (2022) expects that container shipping rates will remain elevated in 2023 as demand continues to outstrip supply. However, they may moderate slightly as carriers increase their capacity by ordering new ships and deploying idle vessels. Fitch also expects that carriers will face higher operating costs due to stricter environmental regulations that require them to use low-sulfur fuels or install scrubbers on their ships.
Tanker Shipping: The tanker shipping sector has been negatively affected by the COVID-19 pandemic, which reduced global oil demand and production. This led to an oversupply of tankers and low freight rates. According to Fitch Ratings (2022), tanker shipping rates will recover gradually in 2023 as oil demand rebounds with the easing of lockdowns and travel restrictions. However, they may still remain below their historical averages due to excess capacity and competition from pipelines. Fitch also anticipates that tanker operators will face higher capital expenditures as they need to comply with environmental regulations such as ballast water management systems and carbon intensity reduction targets.
Dry Bulk Shipping: The dry bulk shipping sector has benefited from strong demand for commodities such as iron ore, coal and grains from China and other emerging markets. This led to high freight rates and improved profitability for dry bulk carriers. According to Fitch Ratings (2022), dry bulk shipping rates will remain stable in 2023 as demand growth matches supply growth. However, they may face some downside risks from potential trade tensions between China and its trading partners or environmental disruptions such as floods or droughts that could affect commodity production or transportation. Fitch also notes that dry bulk operators will have to invest more in fuel efficiency measures or alternative fuels such as liquefied natural gas (LNG) or ammonia to meet environmental regulations.
In conclusion, shipping costs are likely to remain high and volatile in 2023 and future due to various factors affecting supply and demand of shipping services. According to the European Central Bank (2021), shipping costs make up less than 3% of the final cost of manufacturing output, implying that international shipping costs make up less than 1%. However, they also note that shipping costs have a larger impact on certain sectors such as textiles or furniture that rely more on imported intermediate goods.
European Central Bank. (2021). What is driving the recent surge in shipping costs? Retrieved from https://www.ecb.europa.eu/pub/economic-bulletin/focus/2021/html/ecb.ebbox202103_01~8ecbf2b17c.en.html
Fitch Ratings. (2022). Global Shipping Outlook 2023. Retrieved from https://www.fitchratings.com/research/corporate-finance/global-shipping-outlook-2023-07-12-2022
Freightos. (n.d.). Shipping Delays & Freight Cost Increases 2030 | Freightos. Retrieved from https://www.freightos.com/freight-resources/coronavirus-updates/
Statista. (n.d.). Global container shipping rates | Statista . Retrieved from https://www.statista.com/statistics/1250636/global-container-freight-index/