I. The New Geopolitical Flash point: War in Israel
Geopolitical conflicts and global health crises such as wars and pandemics often have a ripple effect on various industries. Although they cause widespread suffering and death, these crises inadvertently inflate profits in certain sectors.
War and Defense Contractors
Wars typically boost returns for defense contractors. The ongoing conflict in Israel, a new geopolitical flashpoint, is no exception.
Pandemic and Pharmaceutical Companies
The pandemic has turned out to be a windfall for some pharmaceutical companies that developed vaccines and other COVID-related treatments.
Shipowners and Crises
Shipowners have managed to profit from both these crises. Container-line owners, in particular, made fortunes during the COVID pandemic.
Impact of Russia’s Invasion of Ukraine
The recent invasion of Ukraine by Russia buoyed rates for tanker companies, creating an unexpected positive impact on the tanker rate structure.
However, the bottom-line implications vary by shipping sector. Container and dry bulk shipping are less directly exposed to possible effects than crude and product tankers and liquefied natural gas (LNG) and liquefied petroleum gas (LPG) carriers.
II. Trouble Ahead: Container Shipping Rates Sinking
The outlook for container shipping lines is not promising. The peak season is losing steam, and spot rates are falling into loss-making territory.
Rates Under Pressure
According to Alphaliner, rates “continue to lose ground, bending under the pressure of insufficient demand and growing overcapacity.”
Asia-North America Lane
The Freightos Baltic Daily Index (FBX) spot assessment for the Asia-North America West Coast lane has fallen 16% over the past month, to $1,712 per forty-foot equivalent unit as of the latest assessment.
Asia-North America East Coast Lane
The FBX Asia-North America East Coast assessment is down 13% over the past month, to $2,662 per FEU.
European trades are faring even worse than the U.S. trades. The Drewry World Container Index (WCI) spot indexes hit a recent peak on Aug. 17.
Since then, the WCI assessment for Shanghai to Rotterdam, Netherlands, has plunged 34%. Spot prices from Shanghai to Genoa, Italy, have dropped 27%.
As the industry navigates through these challenging times, it’s crucial for stakeholders to stay informed and adapt to changing market conditions.