Sea freight all over the world has been significantly disrupted by the ongoing COVID-19 crisis. It has started recovering and signalling a boom in new container ship orders while the industry continues to grapple with the issue of vessel shortage.
Shipping enterprises, buoyed by sky-high freight prices, have been splashing out cash to expand their fleets. By 2023, the new shipping capacity is expected to hit a record-breaking level.
The order for at least 276 new vessels has already been placed within the first seven months of 2021. This would add a little more than 10% capacity to the global container fleet. However, as it takes at least two years to finish building a new vessel, the market will continue to be overheated. Banchero Costa expects a 3% year-on-year (YoY) growth in shipping capacity in 2021 and 2022.
Freight prices have surged in recent months, sparking a shortage of vessels to meet runaway demand. The Freightos Baltic Index (FBX) of international freight rates and shipping prices reveals that the rates for the route from China to the West Coast of North America have shot up in a year by over five times. Every vessel that is capable of floating is in deployment at the moment.
Global shipping had come to a virtual standstill during the initial days of the ongoing Covid-19 pandemic. However, the demand for sea cargo transportation kept growing from mid-2020 and even more in 2021. The growth is expected to continue until the first half of 2022 per the predictions of CMA-CGM, the French shipping major.
The maritime industry is all set to splurge on new vessels after a decade of shortage in supply. AP Moller-Maersk, the world’s largest Danish container carrier, experienced its net profit hit a $3.71 billion mark in the second quarter of 2021, up 30% on the 2020 full-year figure. France’s CMA-CGM logged a second-quarter net profit of approximately $3.5 billion, 25 times more than what was achieved in the same period in the previous year.
An advanced environmental measure to restrict the speed at the International Maritime Organization (IMO) backed by France indicates that more vessels could be needed just to cater to the old level of demand.
Carrying capacity is also expected to drop. This is because cleaner fuels in some newly built vessels are likely to need new tank storage. Ships whose scrapping has been postponed will have to undergo replacement at the same time.
Banchero Costa has reportedly said that this also means that the number of ships scrapped in 2021 will be among the lowest from 2011. However, by 2023, the number of the discarded vessels will feature among the highest.