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42 Journal of Commerce | J anuar y 2, 2023 www.joc.com EXECUTIVE COMMENTARY ANNUAL REVIEW & OUTLOOK 2023 Maritime AD Ports Group Ross Thompson Chief Strategy and Growth Officer adportsgroup.com Change is a constant in our industry, so I would always be cautious about saying things have changed "irrevocably." One of the biggest opportunities — and chal - lenges — we face is the move toward green fuel and the deployment of energy-efficient technology. This industry-wide shift pres - ents us with a range of options, from the expansion of multi-fuel port ecosystems and exploration of green hydrogen to the estab - lishment of green corridors and introduction of sustainable building practices. We are already seeing a rise in the number of orders for new alternative-fuel-capable vessels, using liquefied natural gas (LNG), methanol, or ammonia, as well as the retrofitting of existing fleets for alternative fuels. In addition, we are seeing the development of "green port" infrastructure — for example, the introduction of LNG bunkering. Increasingly, all players in the supply chain are recognizing the impor - tance of developing a multi-fuel portfolio. There are obvious financial implications for these investments. According to research from the Global Maritime Forum, the scale of cumulative investment needed between 2030 and 2050 to achieve the International Maritime Orga - nization (IMO) target of reducing carbon emissions from shipping by at least 50 percent by 2050 is approximately $1 to 1.4 trillion, or on average between $50 to 70 billion annually for 20 years. Getting these decisions right will be critical for our industry. Beyond that, the constant we AMA Capital Partners Peter Shaerf Managing Director amausa.com There have been three recent stages of evolution: pre-pandemic, pandemic, and post- pandemic. Container shipping has seemingly been battered, embraced, and — going forward — something in between! The liner companies are coming off immense and record profits in 2021 and 2022, with 2022 being in excess of $275 bil - lion — significantly higher than even 2021 and well above pre-pandemic levels. While there are doomsayers out there predicting a huge drop-off for 2023 and a return to the more traditional doldrum days of liner shipping and profitability, there is much to be considered, and it is quite a reasonable expectation for con - tainer shipping to see a very slow and gradual return to normality in spite of the massive orderbook for new ships. What can we expect going forward? First off, the orderbook for new container ships stands at record levels. The number of anticipated TEU capacity to be delivered in 2023 and 2024, at about 2.4 million for 2023 and 2.8 million for 2024, is more than double the deliveries in the two years prior. The total orderbook as of now is over 7 million TEU, the highest it has ever been in raw numbers. Although, to give proper statistical balance, it accounts for only 30 percent of the existing fleet. (In 2008 the orderbook represented over 60 percent of the existing fleet.) So how can and how will the carriers deal with this huge influx of ton - nage and avoid the boom/bust cycles that have previously been the bane of the industry? We see numerous ways for the liner companies to mitigate the potential damage and to keep profitability at what, for many, will be sur- prisingly high levels. Demand is predicted to grow at a rate that is far below supply. Leading consultancy firm Drewry calls for a base case demand growth in 2023 of 1.9 percent, which is well below the annual TEU capacity growth for the next two years of over 30 percent, so managing the capacity will be a key to the ultimate results. We do not foresee a great deal of scrapping. When the market was in a dramatic oversupply situation in 2014–15, vessels predominantly owned by independent third-party owners were being scrapped on expiration of their charters. Several as young as ten years of age were sent to the breakers, and, for a while, fifteen years of age became the norm. With freight rates (and charter rates) at record levels in 2021 and 2022, there was virtually no scrap - ping. Do not expect scrapping to dramatically impact the supply. Slow steaming might help. Driven to a large extent by the need to reduce emissions under the growing list of regulations emanating from the alphabet soup of regulatory bodies and by the high level of fuel costs, it has been sug- gested by no less an authority than Søren Skou, the head of Maersk, that such slow steaming could reduce capacity by an effective 5 to 15 percent. There are two further capacity-reduction factors in play, one controlled by the liner companies and one not. Port congestion, having eased some- what, is still a capacity-reducing factor. The extensive port congestion of 2021 spread throughout 2022, and Drewry estimated that 15 percent of effective capacity was lost this past year due to congestion. There will be a continuing impact of port congestion, but likely not as high in 2023. Blank sailings are a significant capacity-reducing tool that the liner companies can employ, albeit the regulators will be looking hard at any price-manipulation activity. At the beginning of the year, as many as 30 sailings a month in the major trade lanes were being canceled. As of now, it is down to about 20 per month. Liner company behavior is often both undisciplined and unpredict - able, but there is an expectation that there will be enough momentum in the carrier community to try to keep freight rates at relatively high levels. With, for example, trans-Pacific utilization hovering at about 85 percent, that is significantly below the level that would be needed to prevent a drop off in freight rates. As I said at the beginning, we are hovering between boom and bust. "There is much to be considered, and it is quite a reasonable expectation for container shipping to see a very slow and gradual return to normality in spite of the massive orderbook for new ships." ◀ "One of the biggest opportunities — and challenges — we face is the move toward green fuel and the deployment of energy-efficient technology." Ross Thompson