The container shipping industry showed resilience in 2023 amid continued waves of disruption, with financial health strengthening even amid declining revenues, revenue pressure, geopolitical strife, and challenging capital markets, according to AlixPartners’ 2024 Container Shipping Report. While conditions could remain positive for carriers, capacity expansion, reliability performance, labor issues, shipping rates, and regulatory scrutiny must be rigorously addressed.
“Dealing with disruption is standard operating procedure in the global container shipping industry,” says Marc Iampieri, global co-leader of the shipping, logistics and infrastructure practice at AlixPartners. “To be sure, industry stakeholders are facing multiple headwinds, including geopolitical conflicts, adversity in key shipping lanes and ports, labor issues, piracy, tightening regulations, and economic volatility. Carriers have demonstrated that flexibility, adaptability, and relentless focus on profitability remain essential. The adequacy of those actions will be tested in real-time.”
Key takeaways:
- According to the study, the container industry is operating against a difficult backdrop. In 2023, revenues dropped 30% from a year earlier, the study found, and EBITDA was cut in more than half over that period. Capacity is on the rise and, consequently, rates are under downward pressure. Conflict in the Red Sea, meanwhile, could linger for months, according to the report.
- CO2 emissions rose to 239 tons in 2023, putting 2030 CO2 reduction goals at risk at a time when turmoil in the Red Sea will only add more length to voyages. While 2050 Net Zero goals are achievable, they are increasingly ambitious; reaching that objective will require up to $1.4 trillion in investment, a burden that will be borne by carriers, energy suppliers, shippers, and end consumers.
- The industry is not in panic mode, however. Carriers have solid balance sheets and an appetite to deploy the financial windfall reaped during the pandemic, according to the study. The $22 billion in CAPEX investments recorded last year represented the largest total since 2012. And, $83 billion in cumulative cash reserves represents a level 3.7 times greater than their average balances over the past decade.
- Rates have created downward pressure on carriers over the past 1.5 years and have persisted despite a slight upturn toward the end of 2023, according to the study. The war in the Middle East and a consolidation of alliances – now a fixture in the industry – could lift rates out of stagnation. As route maps are redrawn, sailing lengths are extended, setting rates on a potentially steep upward curve.
- The study finds total capacity is up 10% year-over-year. The continued expansion of the container shipping fleet poses a risk, particularly to rates. Deferred deliveries and scrapping could, however, keep planned capacity expansions in check.
- Reliability represents an Achilles’ heel and improvements have been hard to come by, in large part due to myriad disruptions. A mere 30% of vessels arrived on time at the low point, and the current on-time arrival rate has levelled off at 65%, well below the pre-pandemic norm. Adding fuel to the fire is overcapacity that leads ships to be held at port past planned departure dates in a bid to accrue additional cargo and avoid underutilized sailings.
- Shippers, meanwhile, enjoy a buyer’s market amid lower rates and vigorous competition among carriers. Still, most are highly exposed to turmoil and fragile global supply chains. Developing and evolving a reliable Plan B that lowers dependence on ocean transport is essential for flexibility.
- The study shows a high level of urgency for third-party logistics (3PL) providers and freight forwarders to integrate and quit occupying the middle of the market. Cultivating close ties with carriers can lead to acquisitions. Partnerships and strategic agreements will pave the road to resilience and maintaining profitability.
- Investors – both equity players seeking short-term rewards and those pursuing longer-term value -- will find opportunities. Fixed-income investors will unearth distressed-debt situations, while more realistic earnings multiples and plentiful cash will feed financial and strategic acquirers hungry for dealmaking. Macroeconomic uncertainty and global geopolitical conflict do, however, provide considerable risk.
“The ocean shipping market shows no signs of returning to norms experienced before the pandemic, but most carriers are in a healthy financial position and have strategic flexibility to thrive amid choppy seas,” Iampieri says. “Shippers, meanwhile, are already reaping benefits from increasing their adaptability, agility, and optionality.
“We found there is no one-size-fits-all strategy for success,” Iampieri adds. “There is a strong correlation between a carrier’s approach and return on investment. Prioritizing shareholder returns and paying down debt, for instance, currently lead to the best returns. But that may work against carriers when the cycle turns and freight rebounds.”
