Congestion is a Big Piece of the Supply & Demand Puzzle
Author: Vivek Srivastava, Senior Trade Flow Analyst
Date: September 2022
Introduction
Dry Bulk and Containership markets have exhibited sharp declines in earnings over the summer. Many have attributed this to a drop in congestion. However, our data shows congestion persists at high levels, though it has shifted from more visible to less visible regions of the world. In this article, we explore the drivers of congestion and consider what are the implications for supply/demand dynamics, macroeconomics and geopolitical trends.
The summer months of 2022 have seen a slow motion collapse in freight rates for both Dry Bulk Carriers and Containerships. For the former, the Capesize 54-TCA Index fell from USD 38169 per day on 23 May 2022 to just USD 2,505 per day on 31 August 2022 and, for the latter, the Asia to US West Coast box rate slid from USD 7,800 per FEU on 16 May 2022 to USD 3,959 per FEU on 06 September 2022.
On investor calls, public companies frequently cite the unravelling of port congestion from pandemic highs as a major contributing factor. Economic theory dictates that easing congestion releases large numbers of vessels back into the market and quickly expands the available supply of tonnage. But VesselsValue’s new Congestion tool shows that, though it hits the headlines only periodically, congestion persists at stubbornly high levels in between flare ups. It just shifts to less visible regions, so should not be blamed for the collapse.
Congestion Persists in Between Headline Grabbing Flare Ups
Analysts sometimes think of port congestion as a vast black hole that sucks up productive Shipping capacity and transforms it into stationary steel statues. Vessels are only productive when they are moving and Figure 1, below, shows that the proportions of both the Dry Bulk Carrier and the Containership fleets not moving remain near pandemic highs, at 17% and 9% ….. To read more, download here the Congestion A Big Piece of the Supply and Demand Puzzle_VesselsValue_2022 document
