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August 28 2023

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12 Journal of Commerce | August 28, 2023 Special Report the International Maritime Orga- nization will absorb a significant amount of excess capacity. From Jan. 1 this year, it became mandatory for all ships to calculate their energy efficiency existing ship index (EEXI) while also starting to collect data for the reporting of the annual operational carbon intensity indicator (CII) that will be used to determine a ship's CII rating. Sailing at slower speeds will reduce a vessel's consumption and contribute to a better rating, which will require carriers to add ships to their long-haul loops, absorbing excess capacity. "There are 18 or 19 services where we have had to add extra ves- sels to remain compliant," Rolf Hab- ben Jansen, CEO of Hapag-Lloyd, said during an Aug. 10 first-half earn- ings call. "There will be some capac- ity required to cover this. Last year, we estimated it would be in the high single-digit percentage of the global fleet that would be absorbed, and we still believe in that assessment." Carrier executives have been quick to tell analysts and reporters that the "normalizing" of con- tainer shipping markets from the overheated environment of the COVID-19 pandemic was entirely expected, and to some extent, they are correct. First-half year-over-year rate and volume comparisons look grim because of the strong demand and record prices seen on the trades out of Asia during the same period last year, but when compared with pre-pandemic 2019, the view is far more moderate. "So far, the container shipping market has absorbed the higher capacity via better network planning and slower steaming. Yet, we are on the lookout for supply side risks," Clerc said, adding that he does not expect volumes to rebound this year. 'Green shoots' of demand Despite the yawning imbalance between supply and demand, carrier executives have been playing down the impact of the capacity overhang while pointing to "green shoots" of demand that are beginning to emerge on the major trade lanes out of Asia. Carriers believe an anticipated rise in ship scrapping, greater num- bers of idled vessels and the effect of more stringent emissions rules from estimates 2.5 million TEUs of capac- ity will have been delivered by the end of this year and another three million TEUs in 2024. "Despite recycling of older ships, the fleet is still expected to grow by approximately 4.5 million TEUs between early 2023 and early 2025, increasing the fleet capacity by nearly 18%," Rasmussen noted in an Aug. 10 report. Others have slightly more pos- itive outlooks, but the consensus remains that the industry will be onboarding a significant amount of capacity that will be surplus to requirements as consumer demand falters in major economies. Analysts including Drewry, Seabury and Alphaliner predict the container shipping fleet will grow between 5% and 8% in 2023, depending on scrapping levels and any postponement of orders, while container volumes decline 2% compared to last year. In 2024, the fleet is expected to grow between 6% and 9% while volumes rise 4%. "As we enter the second half of the year, we face the challenge of reduced volume growth expecta- tions combined with expected new vessel delivery and higher capacity in the market," Vincent Clerc, CEO of Maersk, told analysts during the carrier's interim earnings call Aug. 4. On top of the new vessel deliv- eries, capacity stuck in congested ports last year has all been freed up, compounding the excess supply. Carriers remained largely profitable in H1 2023, but weakening demand and new capacity will likely dent full-year earnings. Global average container rates slide 61.8% from June 2022 high Global containerized trade volumes, in TEUs, and ocean freight price index TEU 10,500,000 10,500,000 11,000,000 11,500,000 12,000,000 12,500,000 13,000,000 13,500,000 14,000,000 14,500,000 15,000,000 100 60 80 100 120 140 160 180 200 Price Index L May Jul Sep Nov Jan 2023 Mar May Jul Global TEU Volume Price Index Price Index: 87 Apr, 2023 May 15,419,162 217.0 Global TEU Volume: 14.4M 4 Source: Container Trades Statistics © 2023 S&P Global

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