2023: disruptors to make their Presence felt

As 2022 came to an end it became increasingly clear that the good old days were gone with the collapse of sea freight rates, cargo demand and the accompanying economic pressures that will ensure that the next six to nine months will not bring any renewed joy.

In the container industry, carriers are reverting to old practices of trying for market share to fill their ships which, in turn, puts further downward pressures on freight rates. Rather than facing the issue of the collapse of demand and putting ships into lay-up, the current preferred option is to blank sailings and let ships sit at anchor. A short-term solution to a longer-term problem. The bulk sectors, dry and liquid are also under pressure as commodity demand declines due to reductions in industrial production which results in less need for coal, steel, crude oil and petroleum products. The exception is the LNG sector as Europe has changed from pipeline gas to imports by ship from further afield.

The biggest disruptor is the war in the Ukraine which has caused economic problems in Europe, North America and Africa. The rush to find alternative sources of oil and gas allowed producers to push up prices and require long term contracts which in turn pushes up inflation in the energy market even as spot prices decline. Inflation that began with oil and gas has by now filtered into the foodstuffs and consumer markets as wholesalers, retailers and producers push up prices either to cover additional costs or simply for profits sake.

Inflation triggered rising interest rates across the globe as central banks had no other tools to reduce inflation, which of course hit demand as expected and there we come full circle. The IMF warns that fully one third of the global economies are in recession but if we consider that this includes most of the major economies then it becomes more serious.

The U.S. narrowly avoided a “formal” recession in 2022 but can it hold on to growth as demand declines? Probably not. Europe is for all intents and purposes in recession. With the Ukraine conflict stretching into year two things can only get worse. Definitely not a bright outlook for this year.