Global supply chain disruption expected through 2022

Speaking at the Container Market Outlook webinar at the end of last month, Simon Heaney, a senior director at Drewry, said that, for now, the company expects the disruption to last until the end of 2022, instead of the previous forecast of the end of the second quarter of 2022.

Supply chain disruption

Supply Chain Disruptions Expected Through 2022

Simon Heaney, senior director at Drewry's Container Research, has revealed that the shipping consulting firm has forecast it will take much longer for the global supply chain to return to normal.

Speaking at the Container Market Outlook webinar late last month, he said that Drewry recently predicted that supply chain issues would ease by the end of Q2 2022. For now, however, the company expects the disruption to last through 2022.

The view is similar to that of analysts Sea-Intelligence earlier last month that container shipping will not return to normal until the end of 2022.

Supply chain efficiency has deteriorated further in recent weeks, and is getting worse, not better, said Heaney. As the market still has many unexplored unknowns, he admits that the consulting firm's findings "were more gut instinct than we would normally be comfortable with." Although shipping lines are being watched by some regulators, they are not to blame, they are "the lucky winners".

He pointed out that it is not the fault of the shipping lines that the ports make them wait, making their schedules completely messed up. Nor because they cause equipment problems. Nor is it the fault of the ports and berths that they have become "parking lots" for ships.

“Covid stripped away much of their capacity to turn boxes efficiently and then have them moved because there were fewer trucks and no warehousing space,” he stated.

There are many uncertainties, leading the consultant to cut its estimate of world ports' handling capacity from 10.1 percent three months ago to 8.2 percent. This adjustment is the result of severe port congestion and other problems such as power shortages in China and a looming energy crisis.

Spot rates in the third quarter were much higher than previously forecast, contributing to an increase in spot freight rates and leading to a 126% increase in average contract rates in 2021. The rates of the contract is likely to fall next year, however, Heaney said, the contract rates will increase further. As a result, spot rates will increase less, and the average contract rate is likely to increase by 6% by 2022.

As recently reported by Seatrade Maritime News, Drewry is now predicting that container shipping lines will see $150 billion in pre-interest and tax (EBIT) profits in 2021, and this coupled with a rise in contract rates, the profits of shipping lines could be slightly higher in 2022.

Supply will fall short of demand in the container market throughout next year, he predicts, but will decline sharply from 2023 onward. “We’ve seen a frenzy of orders for new containerships recently", "leading to a risk of overcapacity returning to the market,” he said.

However, whether shipping lines worry much about this is an open question. “After three years of previously unthinkable profits, they could well be de-sensitised.”

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