In 2021, there was a revival of sea transportation, but in 2022, working conditions became more complicated due to the risks and uncertainty that arose.
After a decline of 3.8% in 2020, in 2021, the volume of maritime traffic increased by an estimated 3.2% to 11 billion tons. This figure was slightly lower than the level preceding the COVID-19 pandemic, as transportation continued to be held back by a protracted pandemic, unprecedented accumulated problems in global logistics networks caused by a significant increase in demand and an acute shortage of fleet carrying capacity. The growth was mainly due to an increase in demand for containerized cargo. Gas and dry bulk cargo shipments also increased, while crude oil shipments declined.
In 2022, the growth in the volume of maritime traffic slowed to 1.4%, and in 2023-2027, the average annual growth rate will be 2.1%, which is lower than the average for the previous three decades, which was 3.3%. For many years, container transportation has been the fastest growing segment, with volume growth projected to be only 1.2% in 2022, and to accelerate slightly to 1.9% in 2023.
The projected slowdown in growth is a consequence not only of the restrictions associated with the pandemic, but also of a very unfavorable macroeconomic environment combined with the weakening of the Chinese economy. In addition, in conditions of accelerating inflation and rising cost of living, consumers are reducing their expenses with some reorientation of demand from goods to services.
In 2022, the conditions for the implementation of activities remain difficult. Inflation is increasing all over the world and the cost of living is rising. In China, which is the world's largest exporter, the "zero covid" policy has led to the closure of enterprises and disruptions in production activities, logistics and supply chains. In Ukraine, which is a major exporter of food, the ports of the Black Sea have been closed since the beginning of the war.
Shipping was also affected by industrial conflicts and strikes in a number of ports around the world, including Germany, the Republic of Korea, the United Kingdom and South Africa, as well as numerous extreme weather events such as floods, hurricanes and heat waves in Australia, Brazil, Pakistan, East Africa, Europe and the United States States.
All these problems portend additional difficulties for global supply chains and logistics networks and, accordingly, for maritime transport. By the fourth quarter of 2022, global economic growth forecasts were revised downwards, and there were concerns that the global economy could face recession and stagflation.
The volume of traffic in tonne-miles is to some extent supported by the substitution of markets and suppliers. The Russian Federation, faced with economic and other restrictive measures, is looking for alternative markets, and European importers are considering other sources of supply. The demand for sea transportation in terms of cargo turnover in tonne-miles is also likely to increase as a result of the fact that African countries will import grain from more remote regions.
Along with the growth in the volume of maritime traffic in 2021, the number of ship calls to ports also increased again in conditions of unprecedented port congestion, with ports in the United States, Europe and China being the most problematic. In Northern Europe, some transport operators, in an effort to improve efficiency, have reduced the number of port calls on their round-trip flights.
As a result, the volume of unloaded and loaded cargo per vessel call increased, which increased the operating time at the terminals and increased the load on the main ports. The effects of congestion and disruptions have affected a number of industries, such as the automotive, healthcare and electronics industries, and, in particular, caused an acute shortage of semiconductors.
Since the beginning of logistical failures at the end of 2020, there has been a general decline in the level of liner shipping services, although the situation varies from country to country. Among all countries, China has the highest rate of linear shipping service, which has further increased its margin. In addition, India has expanded its regional shipping links thanks to the modernization of port facilities. Similarly, the ongoing development of port infrastructure in North Africa has also helped to mitigate the effects of the pandemic.
Such positive dynamics were countered by a decrease in the level of service in other countries, including the leading countries in economic terms. For example, in the United States of America, weaknesses in the infrastructure of West coast ports, due to the low level of investment for a long time, negatively affected the operation of container ports. However, the situation was even worse in developing countries: during the period under review, most countries in Africa, Latin America and the Caribbean experienced a significant reduction in direct shipping traffic.
The increase in traffic is constrained by the low growth rate of the fleet In 2021, the world merchant fleet grew by less than three percent: since 2005, this is the second lowest figure. The largest growth rates due to global gas demand were observed in the liquefied gas vessels sector, followed by the container ships and bulk carriers sectors.
Since 2011, the aging of the fleet has been observed. In terms of the number of vessels, the average age is currently 21.9 years, and in terms of cargo capacity — 11.5 years. The youngest vessels are still bulk carriers with an average age of 11.1 years, followed by container ships — 13.7 years and oil tankers — 19.7 years.
The average age of ships has increased partly due to the fact that shipowners, in particular of bulk and bulk tonnage, are not sure which way technological development will go and which types of fuel will be the most cost-effective, as well as how regulatory requirements and prices for carbon emissions will change. In an effort to take advantage of the current high rates of tariffs and freight rates, they continue to operate their older vessels.
In 2020, in gross register tons, the tonnage of ships launched decreased, but in 2021 it increased by 5.2%. Nevertheless, the volume of shipbuilding remains below the level of 2014-2017.
Disruptions in global logistics networks began at the end of 2020 and intensified in 2021. Overcrowded ports struggled to cope with the increased demand, as they and transport operators providing communication with the hinterland often lacked equipment, manpower and storage facilities. As a result, in 2021, the indicator of flight delay time in container transportation doubled, while on routes between ports of the Far East and North America in the period from the first quarter of 2020 to the last quarter of 2021, flight delays increased from 2 days to 12 At the same time in 2021, the average duration of container ships in ports increased by 13.7 % compared to the previous year.
Initially, port congestion was mainly observed in three problem regions: China, Northern Europe and the west coast of the United States. However, as liner shipping companies shifted ships to busier and more profitable routes in the United States and China, other countries suffered even more. For example, the indicator of liner shipping services in Africa and Latin America and the Caribbean has decreased by more than 10%. Many developing countries have faced problems with delays in the arrival of ships and a shortage of containers.
In addition, carriers seeking to increase profitability have changed transportation routes, stopping calls at some ports.
Since the beginning of the pandemic, the scale of the problem of non-compliance with the flight schedule has been constantly increasing, which has led to losses for shippers totaling 5-10 billion US dollars. Shippers complained about this and the reduced supply of carrying capacity, especially in small and vulnerable developing countries, as well as high fees for idle and delayed ships, and called on governments to establish closer control over the industry.
In 2022, port congestion and logistical problems persist, which leads to changes in existing routes and the emergence of new regional routes in Asia.
In 2022, the pandemic continued to cause disruptions in the functioning of supply chains and in maritime transport, and many ships were idle in ports. In the period 2016-2019, due to the congestion of ports, about 32% of the world container fleet was idle in them in terms of carrying capacity, and by July 2022 already 37%. In the spring of 2022, due to China's "zero covid" policy, an isolation regime was introduced in Shenzhen and Shanghai, two of the country's largest manufacturing and shopping centers, which forced carriers to redirect cargo to other ports, such as Ningbo.
To fill the gaps created by the transfer of vessels to more profitable East—West routes, Asian regional carriers have started transportation on new regional routes in Asia or have begun to add additional ports of call on the corresponding routes.
In 2021, the insufficient supply of carrying capacity and the ongoing disruptions caused by COVID-19, combined with the revival of trade, caused tariff rates in container transportation to rise to record levels. By mid-2021, rates had reached their peak, four times the level seen before the pandemic. Despite the additional costs, container carriers were able to make a record profit.
Spot rates of tariffs in container transportation have increased on most routes, including routes to developing regions. For example, in 2019, on the China — South America (Santos) route, the rates for TEU were about $2,000, but by December 2020 they had increased to $6,543, and by December 2021 they reached $10,196. During the same period from December 2020 to December 2021, the rates for TEU on the Shanghai—South Africa (Durban) route increased from $2,521 to $6,450, and on the Shanghai—West Africa (Lagos) route — from $2,521 to $7,452.
By mid-2022, the impact of many pandemic-related factors began to decrease. The shortage of carrying capacity began to weaken, the spot rates of transportation tariffs decreased (but were still higher than before the pandemic), and traffic volumes did not grow as fast. Reducing port congestion frees up more transportation capacity and helps to eliminate the accumulated problems in logistics networks and the crisis in supply chains.
Nevertheless, the conjuncture and logistics of sea transportation may deteriorate depending on the state of the global economy.
At the beginning of 2022, tariff rates in container transportation remained high and unstable, although they began to decline in the second quarter of the year. The further dynamics of rates will depend on a number of factors acting individually or in combination with each other, which implies an increase in volatility and a general downward trend in some market segments. These include high uncertainty about demand, port congestion, possible new disruptions in supply chains and the consequences of the war in Ukraine, including rising fuel costs.
By the beginning of 2022, tariff rates on some routes had already begun to decrease, and since the middle of the year their reduction has become significant. In the four weeks between August and September, the rate of their decline reached double digits. By the third week of September, the Shanghai Container Shipping Index had dropped by almost 60%. Nevertheless, the rate level is more than twice the average before the pandemic.
As commodity trade normalizes and new vessels enter the market, we can expect a further reduction in tariff rates in container transportation. At the same time, regulatory provisions in the field of environmental protection will have an increasing impact on tariff rates and their volatility. In 2023, the IMO Energy efficiency coefficient of the existing vessel (CESS) and the operational carbon intensity index (PES) will come into force for all types of vessels. They are likely to lead to a reduction in carrying capacity, since they provide for a reduction in the speed of ships in order to save fuel and will require the conversion or decommissioning of some ships.
In the transportation of dry bulk cargo by September 2022, freight rates decreased due to a decrease in port congestion and a slowdown in growth in the Chinese economy. In the future, demand will be affected by the effects of the ongoing pandemic and its impact on supply chains, slowing global economic growth and commodity price volatility, while supply will depend on fleet growth, in particular given that the volume of deliveries of new ships in 2022 increased by only 3.6%. In addition, the dynamics of freight rates in the transportation of dry bulk cargo is affected by the consequences of the war in Ukraine and the increase in operating costs caused by the transition to a more reliable energy supply and new environmental requirements.
In the oil tanker sector, freight rates can be expected to increase due to a possible increase in oil demand and trade, as well as changes in the geography of world oil supplies due to the war in Ukraine. In addition, there is likely to be some reduction in the carrying capacity of the fleet, as IMO regulations concerning CASS and PES will lead to the withdrawal of old tankers from the markets.
