The shipping industry is experiencing a slow summer as shipping routes from Asia to Europe and other parts of the world face a lack of demand. With firms carrying excess stock and reduced orders, vessels are waiting in ports due to canceled sailings. The world’s largest container company, MSC, recently canceled voyages due to slowing demand. This article analyzes the current state of shipping routes and the factors contributing to the decline in demand.
Manufacturing companies producing apparel, electronics, and other goods are struggling with excess stock, leading to a decrease in demand for shipping products. This oversupply of goods has resulted in canceled sailings and vessels waiting in ports. MSC, for example, canceled the recent voyage of the MSC Deila and blanked sailings of other vessels on similar routes. The high inventory levels in industries such as electronics, high tech, and clothing are a significant contributing factor to the decline in shipping demand.
Large shipping companies are experiencing significant financial challenges as their latest earnings plummet. CMA CGM reported a 73% decrease in its EBITDA for the second quarter compared to the same period last year. Similarly, Hapag-Lloyd’s first-half EBITDA dropped to $3.8 billion from $10.9 billion in 2022. Maersk also reported a sharp fall in its second-quarter profit. These financial losses highlight the extent of the decrease in shipping demand. The oversupply of vessels, ordered after the Covid-19 pandemic, has resulted in low rates and immense pressure on shipping companies.
Shipping companies’ ability to order record numbers of vessels following the influx of excess cash during the pandemic has contributed to the decline in shipping rates. The addition of hundreds of thousands of twenty-foot equivalent units (TEUs) by major shipping lines has led to reduced rates and limited expansion in the near to medium-term. As a result, the freight rates from the Far East to North Europe have been under significant pressure for over a year.
In response to the decline in demand, carriers are implementing capacity management strategies, which involve laying up ships. Blank sailings have become increasingly common in recent years as a measure to balance the market. This year, there have been 13 blank sailings on Asia to Europe routes in July, according to maritime consultancy Drewry. The firm expects similar figures for August and September. These blank sailings help address the excess inventory and weak retail sales plaguing the industry.
The high inventory levels in industries such as electronics, high tech, and clothing have a direct impact on import rates. According to surveys conducted by Flexport, a freight broker, there is a significant amount of excess stock being held, resulting in modest imports. The furniture industry, on the other hand, is holding the right amount of stock. The clearance of these inventories is expected to occur during the holiday season when consumer demand increases.
As retailers source goods from various locations in Asia, supply chain management has become more complex. While current shipping rates provide a good deal for retailers, the need for faster delivery expectations means that retailers must have locations closer to the consumer. This complexity adds additional challenges to supply chain management and requires better planning to optimize shipping methods.
Despite the current decline in shipping routes, industry experts anticipate an increase in ocean freight volumes in the long term. Improved supply chain planning and better inventory management will contribute to this shift. Air freight, on the other hand, is expected to decline as customers prioritize air shipping for high-value, perishable, or surge in demand goods. By improving planning and optimizing supply chains, there is potential for air to ocean conversion, reducing the reliance on air freight for last-minute shipping needs.
The decline in shipping routes from Asia to Europe and other regions is primarily due to the oversupply of goods, reduced demand, and excess stock in industries such as electronics and clothing. Shipping companies are facing significant financial challenges as earnings plummet, and excess vessel capacity puts pressure on rates. While the current situation presents favorable shipping rates for retailers, the complexities of supply chain management and the need for better planning require industry-wide adjustments. The future of shipping lies in improved supply chain planning and a shift towards ocean freight while optimizing air freight for specific types of goods.
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