Will International Shipping Be Like This in 2022?
Over the last year, international shipping has been marked by container and equipment shortages, port congestion, high demand, lost containers, rolled containers, and – of course – outrageously high freight rates. Do the experts think next year will be better? For as much as the experts have been wrong about the last year, how likely are their predictions to come to fruition?
I promised in the last blog post to get into international shipping outlooks for 2022 and beyond in the following post. Then I went on vacation, leaving you hanging all last week. Today, I make good on the promise as I begin examining expert opinions on the future of international shipping.
2022 Demand & Freight Rates
International shipping experts don’t give much hope for shippers to see relief from soaring freight rates anytime soon.
Greg Knowler reported a few weeks ago in the Journal of Commerce (JOC):
Container shipping rates will remain at record levels for the rest of the year and into 2022 as demand significantly outpaces capacity in an environment that will further drive up carrier profitability, according to Moody’s Investors Service.
Unfortunately, the experts aren’t exactly predicting freight rates to hold on to their heights for only a short time into 2022 and then suddenly drop. Greg Miller reported in American Shipper:
[Patrik Berglund, CEO of rate-data platform Xeneta] also sees demand outpacing supply in 2022, which is “bad news for the customer side.”
Overall, the expectations from practically everywhere you look are for demand and freight rates to remain high and carriers to continue making excellent profits next year.
However, as I’ve written about in the past, there is risk for consumer demand to plummet. Rounds of stimulus have certainly increased consumer demand over the last year. However, with the incredible amount of government spending and money printing that comes along with it, inflation is also hitting. Inflation impacts people’s ability to continue purchasing goods at the level they have while reopenings move a portion of spending on goods back to services, entertainment, and travel.
There is something to be said for the inertia of spending. Having established habits of increased online shopping over the course of the pandemic, there are people who will continue in that spending habit, supposing they are able. Of course, inertia alone isn’t enough to keep demand steady.
Consumer demand is not the only place to look for reductions in international shipping demand. The outrageously high freight rates and fees shippers have been facing from international shipping has had some businesses look for domestic sourcing as the profit margin on imported goods are shrinking or disappearing altogether.
Over One-Third Earnings Drop
Even though experts are predicting 2022 to be another excellent year for carriers, there is still a significant drop expected.
Miller’s American Shipper article continued:
Drewry forecasts container-liner sector EBIT [earnings before interest and taxes] to drop by just over a third next year, to a level that still represents an “astonishing performance by historical standards.”
When we’re talking about the potential for a $100 billion 2021 for carriers, a one-third drop in earnings still would mean an incredible 2022 for carriers. Especially when you think about not-so-long-ago-years when carriers were suffering billion dollar losses. However, if the experts think carrier earnings will be reduced by an amount that can be measured in tens of billions, they must see some decrease in demand and freight rates coming next year.
That is at least a glimmer of hope for shippers.
As I stated in the last post, I still believe we could still see some drops in demand and freight rates before 2021 is done, but I’m badly outnumbered by those who disagree.
We’ll continue looking at the future of international shipping next time, examining a potential risk to the high freight rates carriers are enjoying and shippers are hating.