Lars Jensen: Unravelling transformative trends in global supply chains and shipping

In the ever-evolving landscape of global supply chains, the past year has brought about unexpected twists and turns. Forecasts made a year ago are now being revisited in the light of evolving market dynamics. APM Terminals Aarhus, has had the pleasure to talk to Lars Jensen, Chief Analyst and CEO of Vespucci Maritime, who provides valuable insights into the unforeseen shifts in demand, the transformative impact of supply chain mapping, and the often-debated trends of nearshoring.

Over capacity remains a persistent challenge

As we entered 2023, optimism ran high that overcapacity would decrease, and that the container market would recover. Unfortunately, these expectations haven't fully materialised, and the market continues to witness substantial fluctuations. The current level of overcapacity could take a minimum of four years to come into balance, and careful consideration of demand and realistic strategies are needed to meet these challenges.

Global demand dynamics

Throughout the year, inventory adjustments have exerted a profound impact on container volumes. While global import volumes show signs of recovery, they have yet to attain pre-pandemic levels. The purchase boom witnessed during the pandemic has decreased, adding to the complexities of current market dynamics.

Despite efforts to mitigate overcapacity, the inflow of new vessels continues, intensifying the surplus situation and placing pressure on freight rates. Shipping companies find themselves in a challenging position, struggling to navigate the delicate balance between supply and demand. Large fluctuations in the demand for the Asia-Europe route, ranging from a 10% decrease to a 30% increase, underscore the volatility that shipping companies must navigate.

Spot rates and global fluctuations

Spot rates in the Asia to Europe trade have seen a concerning decline. In North Europe, the rate increase achieved in the first half of August 2023 has been eroded, resulting in rates falling below 2019 levels. This presents a significant challenge as general cost inflation has risen, and carriers have had to implement more expensive low-sulphur fuel to comply with IMO2020 rules.

Environmental shifts

The shipping industry is undergoing a paradigm shift driven by increased awareness of climate impacts. Carbon taxes and sustainable fuel requirements are emerging as pivotal factors influencing shipping companies' costs and necessitating a transition to more sustainable alternatives. However, the lack of a uniform method for calculating and reporting emissions introduces uncertainty, highlighting the industry's need for standardised measures to facilitate environmental impact comparisons and assessments.

Nearshoring realities

Despite discussions about increased nearshoring, trade patterns seem to be staying steady. The "China plus one" trend doesn't mean a big move of production out of China; instead, companies might set up extra manufacturing units outside China if they already have operations there. Nearshoring is expected to happen slowly, with Southeast Asia and the Indian subcontinent being popular choices due to available labour. While there might be a change in where products are sourced, it's not likely to greatly impact global demand or reduce TEU amounts.