Shipping: 2022 in Review

As 2022 draws to a close we are taking a look back at some of the biggest stories that influenced shipping this year.

Three key drivers shaped ocean shipping markets in 2022: the end of the container boom, Russia’s invasion of Ukraine and China’s worsening economic and geopolitical situation.

Here’s a look back at this year’s coverage of how each driver impacted shipping rates and volumes. Container shipping boom finally winds down

The traffic jam of container ships stuck waiting off U.S. ports reached an epic peak as this year began. There were 109 container vessels waiting off Los Angeles/Long Beach on Jan. 9, with around 150 waiting off all U.S. ports combined.

Containers taking twice as long to reach their destination compared to pre-pandemic period Shipping spot rates eased from stratospheric 2021 highs but remained exceptionally strong in the first quarter, buoyed by congestion and inventory building. The timing couldn’t have been worse for U.S. importers negotiating 2023 annual contracts that started May 1. They agreed to unprecedented contract price hikes.

Ocean rates still collapsing – carriers pin hopes on early Chinese New Year The Southern California queue whittled down through the spring. But like a game of whack-a-mole, congestion popped up instead on the East and Gulf coasts. Shippers, fearing disruption when the West Coast port labor contract expired on July 1, switched volumes to other coasts. Long Beach sets record but East, Gulf Coast ports’ gains bigger By the end of July, the countrywide count of waiting ships was all the way back up to around 150 — marking a second peak — driven by East and Gulf Coast congestion. The number of waiting ships has been falling ever since. The Los Angeles/Long Beach queue was effectively gone by late August and officially declared dead in November. U.S. import volumes remained strong through August, then began falling sharply starting in September, led by declines at West Coast ports. By November, declines were countrywide. The moderate spot-rate decline in the first half of this year accelerated in August and September — spot rates fell off a cliff. More recently, the pace of spot-rate declines has slowed. Spot rates have sunk below annual contract rates signed early in the year — to the dismay of shippers that signed those contracts. In many cases, annual rates have been adjusted lower mid-contract and more volumes have been shifted to spot. Ocean carriers face major challenges ahead, given sinking spot rates, lower contract rates kicking in halfway through next year (if not sooner) and a massive flood of new ships that’s about to hit the water. Carriers 'in panic mode' as recession bites, offering 'crazy' ocean rates

However, carriers are far from in distress, still pocketing billions per quarter. Profits didn’t peak until the third quarter of 2022. Russian invasion resuscitates tanker business The pandemic was not a “black swan” — it was a known risk — but it had black-swan-like effects on shipping. Just as the pandemic eased in early 2022, world trade was shaken by yet another historic event: Russia invaded Ukraine, setting off the largest armed conflict since World War II, one that could become much larger at a moment’s notice. Container shipping fallout has been limited. Major shipping lines immediately “self-sanctioned” and pulled services from Russia. Given Russia’s small market size, this had little effect on container lines Russia-Ukraine roundup: Big surge in price of oil

Tanker markets, in contrast, have seen huge changes. First, Russia throttled down pipeline deliveries of natural gas to the EU, then someone blew up the pipelines. The EU needed to fill its stockpiles by this winter, prompting an armada of liquefied natural gas tankers to deliver cargoes from the U.S. Gulf Russian invasion propels price of ship fuel to historic high

In June, the EU voted to ban seaborne crude imports from Russia starting Dec. 5 and products imports starting Feb. 5. Trade routes began to shift before those dates. More Russian exports flowed to China and India. The EU replaced Russian imports with cargoes from the U.S., Brazil, West Africa and the Middle East. The longer voyage distances of the replacement routes pushed up spot rates for crude tankers as well as product tankers.

As 2022 draws to a close, the big question is how EU sanctions on tanker insurance will affect Russian exports to non-EU countries. The G7 and EU price-cap plan is designed to keep sanctions from reducing volumes too much while still curbing Russian oil income. It might work in practice even if it doesn’t on paper.

No matter what happens with the price cap, it has been a banner year for crude and product tanker owners. Stock investors and traders reaped the rewards of war-juiced tanker rates. If 2021 was the year of container stocks, 2022 is the year of the tanker stocks. The China factor

No country is more central to shipping than China. It is the world’s largest importer of dry bulk cargo, the largest charterer of crude tankers, the second largest importer of LNG and the largest source of containerized export cargo.

China is the world’s largest shipbuilding nation. Its factories construct over 90% of the world’s containers. It boasts seven of the world’s top 10 container ports.

When China stumbles, so does shipping. China stumbled in 2022. The International Monetary Fund expects China GDP growth of only 3.2% this year, down sharply from 8.1% in 2021. Investment bank Evercore ISI expects China growth this year of only 2%. 'Not much has changed' at China's ports, despite traditional post-CNY lull China’s demand for dry bulk imports was battered by a property development crisis and COVID lockdowns. Pandemic measures decreased the mobility of citizens, curbing fuel demand and thus demand for tanker imports. Lockdowns simultaneously snarled container cargo supply chains. Shenzhen locks down 17.5 million residents, closing factories risking chaos in global supply chain U.S. imports from China slowed faster than overall imports. China Beige Book CEO Leland Miller warned that “the China growth story is over now.” China’s economic malaise is just part of the story for shipping. The other involves geopolitical tensions. First came China’s allegiance to Russia in the wake of the Ukraine invasion. Then came live-fire military exercises off Taiwan. Shipping market participants are now openly talking about and planning for the possibility of a future war between the U.S. and China. As with the pandemic and the Ukraine-Russia war, a U.S.-China military conflict does not meet the definition of a black swan but promises the gravity of consequences associated with one.

“What happened this year has amplified and emphasized that you’d be foolish to depend on a steady supply at a low cost from China, given what might happen geopolitically,” said Paul Bingham, director of transportation consulting at S&P Global. For energy shipping, a future U.S.-China war is “almost not even worth worrying about because the consequences are so big,” said Flex LNG CEO Oystein Kalleklev. “If that happens we’re all screwed. Russia and Ukraine would look like a small bump in the road. You would have an energy shock like you’d never seen before. The whole world economy would stop.” Credit Freightwaves and Seatrade Maritime News