Marc Levinson

Tag: Containers

  • Bloodbath

    Since it first carried international trade in the 1960s, the container shipping industry has been notoriously cyclical: years of strong trade growth and strong profits have been followed by periods of less robust trade, excess capacity, collapsing cargo rates, and the exit of carriers too weak to survive in a sea of red ink. That story would have repeated itself in 2024 were it not for the Houthis’ attacks on shipping through the Red Sea; sailing between Asia and Europe around the Cape of Good Hope rather than through the Suez Canal made voyages approximately 30% longer, soaking up capacity and keeping rates high.

    The cycle is about to repeat. The headline is growth: UNCTAD’s latest Annual Review of Maritime Transport, published September 24, projects that the volume of containerized trade — not adjusted for distance — will rise approximately 12% over the next five years. But UNCTAD also warns that the shortening of supply chains, uncertainty about trade policy, and the return of shipping to the Suez Canal “could further dampen growth” of the total mileage traveled by containers moving by sea.

    Even as demand weakens, shipbuilding is going gangbusters. According to Alphaliner, which keeps track of such things, vessels able to carry 9.5 million twenty-foot containers are on order, equivalent to 29% of the industry’s current capacity. This comes on top of 9.7% capacity growth in 2024. Scrappage of container ships, the only moderating force, has been very low since 2020.

    With hundreds of ships coming into a market with limited growth prospects, a bloodbath lies ahead. How will it play out? Nearly two thirds of the capacity on order has been commissioned by the largest carriers, Mediterranean Shipping, Maersk, CMA CGM, and China Ocean Shipping. Of those four, all but Maersk plan to increase the number of boxes their fleets can carry by more than 30%. Those companies probably have strong enough balance sheets to survive the coming rate war. As in past shipping downturns, carriers with tenuous financial situations are unlikely to be so lucky.

  • Reality Sets In

    Despite ample signs to the contrary, global economic institutions have remained remarkably optimistic about the state of the world economy. This week, that suddenly changed. The World Bank and the World Trade Organization both downgraded their economic outlooks. Even more significant, both finally acknowledged that we are experiencing not just a cyclical downturn, but a long-term decline in the rate of economic growth.

    “Across the world, a structural growth slowdown is underway,” according to the World Bank. “[A]t current trends, global potential growth—the maximum growth the global economy can sustain over the longer term without igniting inflation—is expected to fall to a three-decade low over the remainder of the 2020s.” Meanwhile, the WTO cut its forecast for international trade in 2023 by more than half, to a scant 0.8%.

    The WTO still forecasts trade to grow by 3.3% in 2024. I expect that forecast to be revised downward as well — particularly because the organization also acknowledges that the share of intermediate goods in international trade has tumbled. If fewer intermediate goods are moving through supply chains, neither the volume nor the value of goods trade is likely to expand very much.

    Both reports attribute much of the slowdown they now forecast to geopolitical events, such as the war in Ukraine and increased tensions between China and some of its major trading partners. That is not incorrect. But as I argue in Outside the Box, slowing population growth and aging populations are likely to be long-term drags on consumer spending on goods, while technological changes will reduce the need for widely traded goods such as auto parts and components for industrial machinery.

    Meanwhile, deliveries of new container ships are at a record high, and container terminals around the world are racing to add new capacity. I’d be interested to understand why.

  • Too Much Stuff

    The U.S. distribution system is stuffed with stuff. Business inventories in April were up nearly 18% from a year ago. Inventories at non-auto retailers were up 20%. One merchant after another — Target, WalMart, Costco, even mighty Amazon — has reported disappointing earnings and is marking down excess merchandise like crazy. Merchant wholesalers — a category that includes companies that import everything from washing machines to smartphones for sale in the United States — show much the same trend.

    The reason for the excess inventory? Simply enough, consumers have stopped spending with abandon. As shopping habits revert to prepandemic norms, inflation decimates buying power, and home sales stall, the demand for consumer goods is stalling as well. This trend, visible in Europe as well as North America and parts of Asia, means that fewer consumer products and the inputs required to make them are moving through manufacturers’ and retailers’ supply chains. International trade in goods, which soared in 2021, is facing a decline. Construction of new distribution centers is grinding to a halt.

    The logistics industry has been slow to pick up on the implications. Some transportation companies and freight forwarders have issued glowing forecasts for the months ahead. Many ports are expanding in expectation that the trade boom will linger, and some that have rarely seen a container ship are investing to lure vessels that may never arrive. Shipbuilders’ order books are full, including many orders for vessels large enough to carry 24,000 20-foot containers. As globalization enters an era in which manufacturing value chains matter less and consumer spending is anemic, this enthusiasm for adding capacity is hard to understand.