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Risk factors may inhibit freight demand under extremely unstable market

According to the information from Drewry, a maritime analyst, said shipping demand may be falling, although carriers are reporting a surge in profits due to higher freight rates.

Drewry has released its latest outlook for the container market, where it expects shipping companies to surpass last year's record earnings and deliver an "incredible" operating profit of up to $300 billion in 2022. But Drewry said more significant risks were looming that could fundamentally change market conditions, and quickly. It expects container shipping demand to slow this year and next.

Earlier this year, Drewry estimated that demand would grow 4.6% in 2022, but has now reduced that to 4.1%. And lowered the demand growth rate in 2023, from the previous 3.5% to 2.8%.

“The container market is very volatile and things change rapidly. How freight rates will develop further depends largely on the duration of the lockdown and the economic impact of the ongoing Russian-Ukrainian conflict.” Drewry senior manager of container research Simon Simon Heaney said in the webinar. 


Drewry believes that a series of major risks, such as the epidemic blockade and the Russian-Ukrainian conflict, may hinder demand in the container market, leading to lower freight rates and thus slower revenue growth for carriers.

“We haven’t seen conclusive evidence that demand is falling, but it is certainly slowing. Data collected since we wrote our report suggests that the outlook for freight rates and liner operator profitability may be a bit bleaker than forecast.” Simon Heaney said.

Drewry expects rates (both spot and long-term) to increase by 39% this year, compared with an almost vertical increase of 110% last year. Drewry expects the container industry to post an incredible $300 billion in operating profits in 2022, Simon Heaney said. Even higher bunker prices and vessel operating costs are expected to be offset by higher average freight rates.


Complicating the current trend in freight volumes, Lars Jensen said, Chinese New Year traditionally brings a drop in freight volumes in January and February. "The decline in freight volumes we saw in January-February last year was smaller than normal. This year is more normal, with a bigger decline."


"Freight rates are largely determined by current capacity shortages, not freight volumes," Jensen said. Shipping lines are largely trying to get customers to sign long-term contracts at high rates, which could keep them high this year. However, Jensen is skeptical that shipping companies will be able to maintain long-term contracts as the market turns.