Shipping Industry's Rosy Outlook Continues This Year...Global Trade Uncertainty Remains a 'Variable' (Comprehensive)

Freight Rates Expected to Remain Strong Through First Half... "US-China Trade Dispute and Omicron Are Variables"

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[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. 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 it is difficult to predict how uncertainties in global trade due to the resurgence of US-China conflicts and the Omicron variant will affect the industry.

According to the shipping industry on the 18th, as of the 11th, the Shanghai Containerized Freight Index (SCFI), a global shipping freight indicator, recorded 4980.93 points. This is an increase of 2155.18 points compared to 2825.75 points in the same period last year. The Baltic Dry Index (BDI), which shows the freight trends of bulk carriers transporting iron ore, coal, grains, and other dry bulk cargo, also rose from 1339 points on February 12 last year to 1896 points as of the 16th.

The rise in shipping freight indices is directly influenced by 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 boom in the shipping industry is expected to continue this year as well, as port congestion is anticipated to persist at least until 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 3040 points to 3962 points. Last year's average was 3758 points. The BDI is also projected to average 2782 points this year.

The industry is closely watching the labor agreement negotiations scheduled for July between the International Longshore and Warehouse Union (ILWU) at the US West Coast ports and the Pacific Maritime Association (PMA). Since union slowdowns are expected ahead of the negotiations, the congestion is likely to continue for the time being this year. An industry official said, "I understand that port automation is part of the negotiation, which is related to jobs," adding, "Because of this, there could be strikes."

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 anticipate the impact.

The same applies to next year. According to shipping information company Alphaliner, the increase in shipping capacity (total loading capacity) this year is expected to be 1,112,872 TEU (1 TEU = one 20-foot container), and 2,413,984 TEU next year. While a significant increase in capacity could stabilize freight rates, the International Maritime Organization (IMO)'s plan to reduce carbon emissions by 2% annually from 2023 to 2026 poses a variable. This will lead to the phasing out of existing vessels, inevitably affecting shipping capacity.

The shipping industry maintains that, given the various variables, the future of freight rates must be observed carefully. An industry official explained, "Currently, the shipping industry faces various variables," adding, "With the possibility of renewed US-China trade disputes, ongoing COVID-19, oil prices, and other factors, it is difficult to make easy predictions."

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