Shippers are shelving their contract duties and turning to spot markets for vessel spaces as container freight markets soften further. Customers are taking a wait-and-see approach amid a persistent decline in freight rates, according to China United Lines executive vice-president Ding Wei. “And they often take the cheaper [freight all kinds] spot rates via forwarders rather than carrying out the contracts,” he told a container shipping webinar as part of the World Maritime Merchants Forum.

Spot markets were elevated by a pandemic-led capacity shortage when the contracts were signed last year and earlier this year, also at high prices. But a sharp correction since has raised concerns that shippers could walk away from their commitments as they have done in the past. Consultancy Sea-Intelligence earlier said that shipping lines had already offered to lower contract prices in order to maintain the relationship with large cargo interests. Mr Ding’s company is among those emerging carriers in the past year that have taken advantage of the market boom to enter the east-west mainline trades. It applied to be listed on the Hong Kong Stock Exchange in April, with plans to use the proceeds from the initial public offering to support its expansion. The Shanghai-based company ordered a pair of 7,000 teu ships, which will be the largest vessels in its fleet, in February at Shanghai Waigaoqiao Shipbuilding.

Mr Ding said container demand was expected to remain sluggish in the foreseeable future. “Based on the feedback from companies in the US, inventory there is still high and cannot be digested in the short term,” he said. “The American consumption structure has also changed significantly, with severe inflation, especially the soaring gasoline prices, eating up their demand for buying other products.” Inflation in the US was having a “far-reaching impact” he added. Not only CU Lines’ liftings from China, but also those from other Asian export hubs, such as Vietnam, Thailand and even India, had seen a fast contraction in volumes, he added. Weak demand aside, Drewry China general manager Du Yu also warned of a raft of newbuilding deliveries that will soon add strain to the already unbalanced market fundamentals. About 2.6m teu of fresh tonnage, or about 11% of the existing fleet, are scheduled to hit the water in 2023, including those to be pushed back from 2022, according to Drewry’s estimates.

Shipping lines may have to take a series of measures, such as scrapping, idling, delaying deliveries, slow steaming and blank sailing, in order to absorb that amount of extra supply. “If carriers don’t take enough action in capacity control, freight rates are bound to suffer a hard landing in future,” said Ms Du. But even if they do, the less than 2% demand growth forecast by Drewry is unlikely to be sufficient to shore up rates. “Rates will inevitably go down,” she said. “But the pace and extent of it is difficult to predict due to many other variables, like port congestion, the Russia-Ukraine conflict and the impact of the new emission rules.” Mr Ding said that small-and medium-sized carriers were facing more pressure in cutting costs and increasing vessel utility when compared to their large rivals. He added that CU Lines was now targeting e-commerce clients in southern China, aiming to provide them with more tailor-made, end-to-end services to increase the contract performance ratio.