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26 Journal of Commerce | January 2, 2023 www.joc.com Maritime The big picture: Container carriers are entering a global economic downturn in an exceptionally profit- able position they believe will allow them to ride out the difficult market that lies ahead. But uncertain- ties around demand and supply are piling up, obscuring both the potential depth of the downturn and its duration. A massive increase in new ship deliveries will outstrip weak demand growth in 2023, and the impact of new ship efficiency and carbon intensity regulations from the International Maritime Organiza - tion (IMO) on vessel supply remains unclear. to the bottom on pricing. However, profitable carriers could decide to chase market share and allow their healthy balance sheet to absorb any short-term losses incurred along the way. Whether such a rate war takes place will depend on how quickly freight demand returns. A new normal: With demand and rates on the major east–west trades soft- ening dramatically, carriers will once again be urgently looking for freight to fill their growing fleets. That's good news for shippers after two years of capacity shortages, poor schedule reliability, and sky-high rates. For carriers, however, this could portend a return to the persistent overcapac- ity that resulted in massive financial losses and widespread consolidation in the decade or so that preceded the COVID-19 pandemic. JOC email: greg.knowler@spglobal.com twitter: @greg_knowler come into effect Jan. 1, will likely absorb some of that excess capacity, but the market will be heavily over- supplied. Aggressive attempts by car- riers to match capacity with demand have thus far been ineffective in arresting the rapid slide in spot rates, and some analysts believe carriers are gearing up for a potential rate war in 2023. Those analysts say carriers can weather the spot market storm because they have already protected their profit levels by locking shippers into long-term contracts when rates were significantly higher. This profitability, combined with soaring operating costs led by rising bunker fuel prices, should rule out a true race A look back: The lack of container ship space and accompanying strato - spheric rate levels of 2021 carried over into the first quarter of 2022 on the major east–west trade lanes out of Asia. High volume and chronic port congestion continued to prove an explosive combination, with intermittent vessel bottlenecks at major ports in the United States and North Europe, creating lengthy delays that stretched across all transporta - tion modes and reached deep inland. Those delays tied up equipment, which prompted carriers to prioritize the return of empty containers to Asia to take advantage of soaring headhaul rates, often to the detri- ment of exporters. But with most US and European importers ordering their goods early to avoid the port and logistics delays, market condi- tions began to shift heading into the summer, and it soon became apparent that the traditional peak ocean ship- ping season would fail to materialize in 2022. Spot trans-Pacific and Asia– Europe rates began to tumble from their record highs, and that decline picked up pace in the third and fourth quarters, despite carriers cutting capacity through widespread blank sailings and service suspensions. A look ahead: Ship owners and operators will take delivery of new vessels with a combined capacity of roughly 2.6 million TEU in 2023, an 11.3 percent increase from current global fleet capacity, while demand is expected to grow just 1.9 percent, according to S&P Global, parent com- pany of the Journal of Commerce. The IMO's Energy Efficiency Existing Ship Index (EEXI) and Carbon Intensity Indicator (CII) rules, both of which Flood warnings New container ship deliveries to exacerbate existing overcapacity By Greg Knowler This could portend a return to persistent overcapacity. Global container ship capacity will grow 11.3 percent in 2023, while demand will increase just 1.9 percent. Adrian Catalin Manea / Shutterstock.com ANNUAL REVIEW & OUTLOOK 2023