Although booming... Shipping industry on alert for 'variables' amid rosy outlook

Global Uncertainty Remains Amid Rosy Outlook... "Difficult to Predict"

[Image source=Yonhap News]

[Asia Economy Reporter Yoo Hyun-seok] The shipping industry, which experienced an unprecedented boom last year, is expected to continue its strong performance this year as well. This is because the port congestion that caused the rise in shipping freight rates is likely to be resolved by the first half of this year. However, some opinions suggest that it is not possible to be overly optimistic, as the uncertainties in global trade due to the resurgence of US-China conflicts and the Omicron variant could have unpredictable impacts.

According to the shipping industry on the 18th, as of the 11th, the Shanghai Containerized Freight Index (SCFI), a global shipping freight indicator, recorded 4,980.93 points. This is an increase of 2,155.18 points compared to 2,825.75 points in the same period last year. The Baltic Dry Index (BDI), which shows the freight rate trends for bulk carriers transporting iron ore, coal, grains, and other dry bulk cargo, also rose from 1,339 points on February 12 last year to 1,896 points as of the 16th.

The rise in shipping freight indices is directly due to the prolonged port congestion. Amid the prolonged COVID-19 pandemic, incidents such as the Suez Canal accident, the closure of Shenzhen Port in China, lockdowns in Vietnam, the closure of Ningbo Port in China, and power shortages occurred. Additionally, the North American shipping and logistics supply chain could not handle the rapidly increased transportation demand, further exacerbating port congestion.

The shipping industry's boom is expected to continue this year as well, since port congestion is anticipated to persist at least through the first half of the year. However, the prevailing view is that the high freight rate trend will stabilize in the second half. Samsung Securities recently raised its estimated average SCFI for this year from 3,040 points to 3,962 points. Last year's average was 3,758 points. The BDI is also projected to average 2,782 points this year.

The industry is closely watching the labor agreement negotiations scheduled for July between the International Longshore and Warehouse Union (ILWU) representing the US West Coast port workers and the Pacific Maritime Association (PMA), the port operators. Since union slowdowns are expected ahead of the negotiations, the prevailing view is that congestion will continue for the time being this year. An industry insider said, "I understand that port automation is part of the negotiation topics, which is related to jobs. Because of this, a strike could occur."

However, there are also forecasts that the downward trend in freight rates will come sooner. Shinhan Financial Investment predicts that container freight rates will peak in the first quarter, not the first half.

Nonetheless, given the many variables, it is difficult to make definitive predictions. On the 16th (local time), the US Trade Representative (USTR) expressed in an evaluation report the need for a new strategy to address China's state-led anti-market policies and practices, leaving open the possibility of renewed US-China trade disputes. Geopolitical tensions surrounding Russia and Ukraine also continue, making it hard to predict the resulting impacts.

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