Shipping industry: outlook 2023
Lloyd’s List has presented its Outlook 2023, a report on shipping and related segments. According to the analysts, the long-term consequences of the geopolitical, energy and economic shocks of 2022 are hard to foresee — but for shipping, there is at least the possibility of a more optimistic reading of the runes
Most of experts polled by Lloyd’s List believe a global recession for the majority of 2023 is inevitable. A global recession is the biggest risk to shipping over the next two years, according to an annual poll of industry sentiment conducted by Lloyd’s List. Close to 50% of respondents drawn from Lloyd’s List readers cited recession as the dominant risk affecting business prospects in 2023. Among other risks they named regulatory measures (including those of IMO towards zero emissions by 2050) and an oversupply of vessels. Other concerns include availability of new fuels (45.86%) and the cost of new fuels (26%).
When answering the question on which shipping sector will perform best in 2023, 40% of respondents named tanker, 27% - container, 14% - dry cargo. Over a half of the respondents (65%) believe that the small private shipowner will be an endangered species within the next decade.
However, the recent years show that such risks and disruption of global supply chains don not always cause poor financial performance. On the contrary, they let the shipping industry multiply its profits, according to Lloyd’s List. When evaluating the prospects of 2023 the analysts refer to the record-high results of 2022.
“Shipping may revel in its apolitical status as the servants of the world economy, but global trade has always been — and will always be — highly politicised,” says Lloyd’s List Managing Editor Richard Meade.
Container segment
As congestion eases, container carriers will need to address how to manage the vast amounts of tonnage ordered during the boom years of the pandemic; as economies cool, they will need to call on the reserves of cash made during peak earnings, according to Lloyd’s List analysts.
Freight rates have also been driven down by lower demand, with global volumes in October down 9.3% on 2021. Global container fleet capacity is set to grow by 7.8% in 2023, with demand growth only reaching 3.5%. In 2024, capacity will increase by another 8.3%, while demand grows by only 3.5% again.
According to analysts at Linerlytica, contract rates for the new 2023 season “appear certain to fall by as much as 80%” as they mirror the decline in spot rates. In 2023, the collective profits of major liner companies are expected to fall to $100bn from $275bn in 2022, according to Drewry.
MSC chief executive Søren Toft does not expect the negative dynamics to last for a long time.
“I would say that the world normally recovers after two or three quarters of weaker demand, which is what we have been seeing since late summer. So I would not be surprised if the world also recovers sometime during 2023. That’s normally the case if you look into the history books. After three or four quarters, the world recovers and then we get back to probably some more modest growth” he said.
Dry cargo segment
In the dry cargo segment, seaborne trade volumes are forecast to be flat to about 1% growth, compared with a fleet expansion of 2% or more, according to a range by analysts polled by Lloyd’s List. The orderbook is the lowest in decades. While newbuilding orders have started to increase, deliveries will only enter the market by 2026 or thereabouts.
On the demand side, iron ore is expected to have limited growth in outright volumes and tonne-miles, due to supply constraints, with most major miners such as Brazil’s Vale and Australia’s Rio Tinto pointing to flat output in 2023. While that scenario will impact capesizes the most, the segment should see support from bauxite and coal.
Analysts say that Russian Atlantic coal being diverted to Indian and Pacific destinations, combined with Pacific/South African coal shipped to the EU, increases the tonne-miles “tremendously”. Shipping association BIMCO shared similar views, expecting 2024 to be a more favourable year for the dry bulk market, with 2023 more sensitive to shocks.
Tanker segment
“Nothing illustrates the enormous upheaval to global tanker markets in 2022 better than the international waters off Angola, which have morphed into the world’s centre of spoofing for the so-called ‘dark fleet’ of tankers,” reads the report of Lloyd’s List. This is where 20 tankers — including 16 very large crude carriers — are falsely signalling their location, or have switched off their transponders, in a practice known as ‘going dark’. Spoofing AIS signals allows vessels to disguise their presence when at ports in Venezuela loading oil cargoes, while appearing to be in international waters near Angola.
Sanctions on Russian oil and shipping brought the dark fleet out into the open. At least 40 tankers have switched from Iran and Venezuela to load Urals grades from the Black Sea and Baltic over the past four months. Some are now tracked off Angola.
Russia formerly supplied Europe with about 40% of its crude, but the December 5 ban on seaborne crude imports has shifted nearly 2.5m bpd to new markets, with the biggest buyers now China, India and Turkey. Greek owners had increased their market share in Russian crude oil trades to more than 53% by November, from 30% in January.
There are now more than 300 anonymously owned, largely unregulated elderly crude and product tankers engaged in shipping between 2.5m barrels per day and 2.8m bpd of sanctioned oil. That is nearly 6% of seaborne crude and compares with 220 tankers at the beginning of 2022, according to Lloyd’s List analysis.
The global tanker fleet is set for a resilient 2023, despite a host of contradictory economic signals and a looming global recession. Further EU sanctions on Russian refined product imports that begin on February 5 will further recalibrate global diesel flows.
Ten of the largest listed shipping companies reported combined third-quarter 2022 profits exceeding $1bn, while they collectively made $1.5bn for the first nine months of the year. That contrasted with nearly $1.4bn in losses reported in 2021. Fourth-quarter 2022 results are expected to be even higher.
Shipbuilding
Full orderbooks do not guarantee stable business, according to Lloyd’s List analysts as labour shortages threaten deliveries.
The government of South Korea plans to shorten drastically the visa administrative procedures for foreign workers employed by domestic shipbuilders from the current four months to one month as the shipbuilding industry grapples with chronic workforce shortages.
The Korea Offshore & Shipbuilding Association predicts that there will be a shortage of 14,000 production workers in the shipbuilding sector by the end of this year. In the short term, it has allowed foreign workers — mostly from Vietnam — to apply for temporary skilled jobs in shipyards.
Taking into account the situation in the labour market, trade unions can intensify their fight for more favorable working conditions, experts say.
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