The Container Shipping Market Revived by COVID-19... Expected to Experience 'Sang-go Ha-jung' This Year

[Image source=Yonhap News]

[Asia Economy Reporter Yoo Je-hoon] The container ship market, which experienced a boom last year due to the COVID-19 pandemic, is expected to show a "sang-go-ha-jung (上高下中)" trend this year. While the supply-demand congestion is expected to ease and freight rates will stabilize downward, many experts believe that a sharp drop in freight rates is unlikely due to economic recovery driven by COVID-19 vaccine distribution and inoculation.

According to the industry on the 14th, as of the 8th, the Shanghai Containerized Freight Index (SCFI) was recorded at 2,870.34, an increase of 87.31 compared to the previous week, continuing last year's upward trend. Since November last year, the SCFI has been breaking its all-time weekly records. On major routes, the West Coast and East Coast of the U.S. remained steady at $4,019 and $4,750 per FEU (a unit referring to one 12-meter container), respectively, while the Europe route rose by $360 (8.7%) to $4,452 per TEU (a unit referring to one 6-meter container) compared to the previous week.

The background of this record freight rate increase lies in favorable demand and supply factors. On the supply side, the fleet growth rate recorded the lowest level since 2016. According to the UK-based shipbuilding and shipping analysis firm Alphaliner, the global container fleet grew by only 2.9% last year compared to the previous year. On the demand side, the annual container throughput is estimated to have decreased by around 2% compared to the previous year. This is a better outcome than the initially forecasted double-digit decline during the early COVID-19 period. In fact, since the third quarter (July) of last year, when economic recovery became evident in various countries, throughput grew by 4.3% year-on-year, driving strong freight rates. As a result, shipping companies have recorded good performance. The industry estimates that HMM posted an operating profit of 800 billion KRW for the year and over 400 billion KRW in the fourth quarter alone.

This year's market is expected to show a sang-go-ha-jung trend. Until around the Chinese Lunar New Year in February, freight rates are expected to continue rising due to container shortages and increased demand, but thereafter, as supply-demand issues are resolved, freight rates are expected to gradually stabilize. However, a sharp decline in freight rates is unlikely. This is because the three major shipping alliances have formed an oligopoly on key routes such as the Americas and Europe, allowing flexible responses to demand, and economic recovery is becoming visible with the development of COVID-19 vaccines.

A representative from the Korea Ocean Business Corporation said, "If the current shortage of empty containers, which is the most important factor driving up freight rates, stabilizes, freight rates are likely to stabilize downward. Also, last year, consumption that was depressed in the first half due to COVID-19 surged in the second half, creating a strong market, but if COVID-19 enters a stabilization phase, related consumption can return to a normal trajectory," he said.

This content was produced with the assistance of AI translation services.