Container Shipping Charter Rates Set for Course Correction, says Report

According to a report, the container shipping charter rates are ready for a course correction after reaching the highs in 2021. It is expected that margins of the Indian shippers will be squeezed this financial year as they will be more than the pre-covid times. The Crisil research says that charter rates were up by 156% year-on-year for the initial seven months, but the rates are set to decline, still ending the year 40-70% higher. It is believed that rates are likely to come down to 30-50% in 2023 due to a fall in the demand for discretionary goods.

The crisil report stated that the demand has largely picked up in 2021 and therefore the rise in charter rates and also the rise in demand for discretionary goods in major in the West, which is seen reversing now. Tankers command a major share at 57% of the overall fleet of the Indian shipping industry, followed by the container share which accounts for 22%. The dry bulk sector and others account for 17% and 4% share, respectively. However, the industry’s high margins in fiscal 2021 and 2022 were because of high charter rates in the container and dry bulk section, though charter rates in the tanker section declined mildly in fiscal 2022, according to the report.

The report further added that the effect of the lower share container segment will penetrate into financial 2023 as well, with restricted ship movement on account of a likely weakening in trade, leading to a slight narrowing in overall industry margins, which are projected at 25-30% compared to estimated 33-38% in the last fiscal. Though, the limits will still be more advanced than the pre-pandemic level due to favorable dynamics, which have dropped the flexible expenditures of shippers.

According to the report, many ship owners decided to retire or stop sailing some of their fleets due to underutilization in the outcome of Covid-19. This led to a surge in charter rates in the second half of fiscal 2021 as fleet supply was less compared to the sudden hike in demand caused by the festive season.

The crisil research stated that development in individual consumption spending in the US supported high charter rates post-2020, while ship owners began arranging fleets with the uptick in demand, it was highly uneven to the increase in demand, and thereby broadened the demand-supply gap. Even container production in China decelerated as companies moved production to infrastructure activities because of the government’s incentive toward infrastructure.

Given all these, while trade has continued so far, the growth rate in 2022 is likely to be lower on year due to inflationary forces pressing demand for discretionary goods in the second half, Crisil Research said.