International freight at risk – as the supply of new container ships drops and environmental pressure for cleaner fuels increases.
Executives are warning about an increase in shortages of container ships. While orders for new vessels have been pouring in, the global logistics demand is high, with availability unlikely to stay on par going forward. Earlier this month, a COVID-19 outbreak partly shut down Ningbo-Zhoushan in China, one of the busiest ports in the world.
Container shortages and the absence of port berths are problems that large shippers worldwide have been grappling with for some time, results of global logistics pressures driven by fluctuating demand and inconvenient COVID-19 setbacks. The industry’s most pressing quandary now, however, is the growing shortage of cargo-carrying ships.
According to executives, container ship availability issues will persist in the future as demand for shipping services continues to soar and retooling fleets becomes increasingly complex.
CFO of cargo shipping giant ZIM, Xavier Destriau, has remarked that vessel supply shortages pose a major threat potentially. This following the hesitancy of a lot of companies to place new orders in the past as many aged ships wait in the scrapping queue. “We are looking at the potential risk of pressure on supply in terms of vessels,” Destriau has said. “We’re talking three, four or five years along the line.”
Andi Case, CEO of Clarksons, has expressed similar sentiments. Clarksons is the world’s largest shipbroking company. There has been a two-thirds drop in the global quantity of shipyards to roughly 115 since 2007, according to Mr Case. “We are miles off oversupplying the fleet,” he asserts.
Shipyards that are currently still operating have been flooded with orders. Container shipping companies generated unrivalled profits in 2020 and 2021, after a goods demand surge raised freight rates astronomically in the latter quarters of last year.
In 2021, there have been orders for vessels with the capacity to carry 3.2 million 20-foot containers. This is a record YTD number, reports Clarksons. However, it may still be nowhere near enough to meet international demand. New orders correspond to only 20 per cent of present fleet capacity.
Vessel shortages are problematic. Over time, they could bring stubbornly high freight costs. In recent years, the shipping industry has had the opposite problem — that is, surplus vessels draining profits.
Over-ordering is still a concern for some players in the industry, even with the rise in global demand — an indicator that container equipment shortages and infrastructure obstacles take precedence.
Less capacity would translate to increased supply chain vulnerability from isolated disruptions, though, such as the closing of ports in China this year that shook international trade.
The type of ship to order is another reason for hesitance in the industry. Incoming energy-efficiency rules (effective 2023) have aroused interest in liquefied natural gas-fuelled vessels, although order percentage has stayed the same since late 2019.
In comparison with conventional fuels, LNG decreases GHG emissions by approximately 25 per cent. But, because it can hold considerable emissions for a quarter of a century, it remains controversial.
Environmentalists advocate for a shift to clean fuels like hydrogen and green ammonia in the shipping industry. Maersk, the largest container shipping line and vessel operator, has avoided ordering ships that are LNG-powered due to uncertainties with regulations and technologies.
Destriau and Case are pro-LNG, arguing that shippers should not wait for new technologies but instead reduce emissions now by embracing liquefied natural gas. “Is it OK to wait 10 years to say ‘maybe by then hydrogen will be ready’? The drive should be to eradicate the heavy fuel oil-powered ships,” Case points out.
ZIM has already signed for charter agreements on 20 LNG-powered vessels.