Certainty has been in short supply in the world of shipping in recent years. Shippers, manufacturers, and carriers have all had to adapt to rapidly changing circumstances, from the lingering impacts of COVID to geopolitical conflicts, from stocking trends to industrial action.
Throughout it all, many have been wondering, sometimes desperately, when things will get back to normal.
The hard pill to swallow is that 2023 will present its own set of challenges across every level of the industry. Shippers and carriers alike will need to be prepared for the implications of shifting capacity levels, an industry-wide shift to a more sustainable future, and a challenging global economic climate.
Carrier capacity management challenge
The second half of 2022 was characterized by plummeting shipping demand and rates, resulting in high levels of excess capacity for carriers.
In 2023, this supply and demand imbalance is set to increase as new vessels enter the market with an approximate capacity increase of 8% on a global level.
While the drop in rates may have been welcome news to shippers last year, the decline in schedule reliability certainly wasn’t, as carriers, in an attempt to manage this capacity imbalance, increased further blank sailing programs. This is a trend that is expected to continue and even intensify in 2023.
The increased capacity is also poised to add further pressure to the Big Three carrier alliances (2M, Ocean and THE Alliance). Already confronted with a sharp and seemingly endless drop in rates, it remains to be seen if 2023 will see carriers break ranks from these alliances to secure market share.
However, there are factors that will mitigate the impact of the new vessels entering the market, though to what extent is hard to predict. Some carriers are said to be in talks with shipyards to delay the delivery of new vessels.
Other options such as scrapping older less efficient ships have become an attractive choice given the introductions of the new IMO regulations and monitoring this year. Yet another influence to consider in this already complex capacity equation.
How sustainability is set to transform the industry
The drive towards a more sustainable future in shipping has been gaining momentum in recent years reflected not only in legislation but also in the carrier order books. 2023 marks the first year where ships will be required to collect and report on emissions data, mandated by new IMO (International Maritime Organisation) regulations.
In 2024, this data will then be used to issue ratings to ships, with poorly performing vessels required to improve or face being idled. This new reporting and rating framework represents the latest regulatory updates from the IMO. The new frameworks aim to achieve their overall goal of reducing the carbon intensity of all ships by 40% by 2030, compared to the 2008 baseline.
This industry shift is also evident in order books for new vessels, with more sustainable dual-fuel ships accounting for an increasing proportion of new orders. Dual fuel engines can operate on both conventional fuel sources and more sustainable forms of energy such as LNG, preparing carriers for the transition from traditional fossil fuels.
The CSSC (Chinese State Shipbuilding Corporation) reported that 31.6% of vessels completed in 2022 were dual-fuel ships. The proportion of dual fuel ship orders is expected to continue to rise in 2023 and grow exponentially in the future as carriers look for more sustainable fuel sources.
Biofuels also presents a unique opportunity to the industry for a more sustainable future. Created from biomass, some biofuels, such as dimethyl ether, are able to ‘drop in’ and replace existing fuel sources without requiring extensive modifications to engines.
Therefore they can be considered the most readily available low emissions fuel option. However, they are substantially more expensive than traditional sources.
While biofuels may be considered a costly alternative to traditional fuel sources and will require investment, the onus cannot just lie on carriers to make adjustments and bear costs.
Creating a more sustainable future requires action across the industry. Not only by carriers, but also by ports, manufacturers, and shippers to support this investment in a greener future.
Economic challenges on the horizon
Global economic predictions for 2023 are bleak and pose a significant challenge. The chief driver of the supply chain context going forward will be demand – as long as economic conditions remain sluggish, importers will keep orders low.
The conditions driving this demand slump are complex, so any predictions must be taken with a grain of salt.
Taking into account current demand levels, orders are unlikely to pick up until at least Q2 2023, depending on the specific vertical and region.
As economic turmoil has continued, industrial action impacting the shipping industry has increased. 2022 saw 38 incidences of industrial action impacting ports; more than quadruple the 2021 levels. These strikes often lead to mass disruptions, delayed shipments, and increased congestion. With sluggish economic forecasts for the year ahead, the risk of further impact from industrial action in 2023 is high.
The role of digitisation in 2023
Along with the drive for capacity management, sustainability and efficiency from carriers, we are likely to see an increased role for supply chain technology in 2023.
Disruptions in 2022 highlight the importance of implementing new technologies into the shipping industry, including:
● Monitoring and anticipating disruptions, to help build supply chain resilience.
● Using real-time information to improve forecast accuracy, and better plan ship utilisation.
● Implementing purchase order management to better gauge arrival times for specific products, and reduce origin dwell times.
● Reporting and analysis of scope 3 emissions to ensure compliance with recognised standards such as the GHG Protocol and ISO 14000.
These tools not only affect how one runs their supply chain, but also how to work with partners – especially carriers.
By being a better partner – a shipper of choice – one can build value led relationships, based on accurate data and measurable service levels.
This will also be a key factor when economic conditions improve and restocking begins. Engaging with technology can provide additional agility.
2022 has been a tumultuous year for shipping, and uncertainty is expected to continue into 2023. Complex capacity challenges, an industry shift towards sustainability, and the growing role of digitisation are all set against the backdrop of a stressed economic climate. With all of this in mind, 2023 will be another difficult year for the shipping industry.
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