by Responsible Editor, SeaNewsEditor

16 August 2024 (Lloyd's List) - THE container port sector is on track for a solid return to the growth trail, following successive years of mundane demand increases.

Analysts Drewry pin a 4.1% growth figure to global port handling for 2024. This is in the context of just 0.5% growth in 2022 and 0.3% last year.

Although far from the magnitude of a post-Covid-type demand surge, the prospect of a much healthier volume return gives cause for optimism heading into the second half of 2024.

But if recent times have taught us anything in the container shipping sphere, nothing is given. Much can change — and change can happen quickly.

Which way the pendulum swings will largely be determined, however, by how the situation in the Red Sea develops.

Although this will not impact volumes primarily, any rise or de-escalation of the region’s hostilities will have consequences for ports globally.

While Red Sea risk remains front and centre of industry thinking, there are other factors at play that could sway the fortunes for container ports in 2024.

To help shed some light, Lloyd’s List has entrusted the help of two of the industry’s most prominent container shipping analysts: Drewry senior ports and terminals analyst Eleanor Hadland; and Lars Jensen, chief executive of container consultancy Vespucci Maritime.

Red Sea crisis

The underlying determinant, and the big unknown for the global port sector, rests with the Red Sea crisis — and not just from the perspective as to when carriers can be once again reassured of safe passage. Plenty of other questions remain, according to Jensen.

Of chief concern is whether the conflict escalates. If hostilities reached the Strait of Hormuz, or even spread to the east Mediterranean, the situation would become increasingly dire for all concerned.

If, indeed, Hezbollah were to get involved — and, for example, start targeting Cyprus — then everything, as Jensen put it, could “go completely nuts”.

Thankfully, at the time of writing, the threat to shipping was still largely confined to the Bab El Mandeb Strait.

Nevertheless, the Houthi attacks continue to have far-reaching ripple effects.

Carriers’ migration around the Cape of Good Hope has realtered service patterns across key trading markets, including the lucrative Far East-Europe trade — which relies on its Red Sea routing via the Suez Canal — while prompting a rapid relocation of transhipment volumes from the region.

For ports, it’s the latter that is the most pressing issue.

At the time of writing, early peak season volumes had started to hit home, squeezing already tight capacity in the container sector further still.

While diversions around the Cape of Good Hope had enabled some slack in the supply chain by limiting the influx of fresh tonnage, this had been unable to fully absorb the recent surge in demand.

“We’ve seen new Red Sea shuttle services launch, and those have helped volumes in the eastern Med hubs, if they are carrier controlled,” said Drewry’s Hadland.

“But we’ve seen rising congestion at the west Med hubs — and we’ve seen a lot of congestion in Colombo, Singapore and the Southeast Asian market.

“If you think about the amount of cargo that those used to move into the Red Sea, and be transhipped in the Red Sea, all of that has been displaced.

“It’s having some extreme effects on a relatively small number of ports — but it’s the transhipment hubs that are suffering. And it’s like throwing a pebble in a pond: that effect will spread out.”

The good news, she said, is that cargo will not dwell forever.

“The footloose nature of transhipment cargo means that as soon as one port fails to meet expectations, they [carriers] will move it to the next port, or the next port etc.”

With further tonnage due to hit the water across the remainder of 2024, Hadland explained how this should help alleviate pressure at the quayside.

“Once the industry can move back to fixed weekly sailings, there’s hope that transhipment operations will normalise.”

Jensen added the key will be whether the demand boom that container shipping is currently facing is just an early peak season rush. If so, he expected volumes to start to taper off by the end of July or early August.

“If this is just an early peak, that will help abate the situation somewhat. It’s not going to resolve the situation, but it will at least give some breathing space.”

However, as highlighted by Hadland, it’s not all bad news for the transhipment hubs carrying the weight of displaced Red Sea traffic.

While operationally, ports will, of course, be incentivised to reduce congestion levels, much like the carriers relishing inflated freight rates, such disruption can be equally financially rewarding, she explained.

Like the lines, terminal operators booked unusually high profits in late 2021 and early 2022 off the back of the post-Covid demand surge.

“The port industry had recovered back to more normal levels, but we’re starting to see revenues creep up again on the back of storage income,” said Hadland.

Red Sea return?

Halfway through the year, there is also little sign of a let-up from the side of the Houthis, with attacks still occurring regularly.

With the risk factor still high, the possibility of carriers rerouting fleets back through the Red Sea is unlikely anytime soon. Indeed, Hadland says that Drewry is constantly pushing back its timeline for a return.

“It’s not just when the carriers will return to that route; there’s also now wider factors to do with insurance markets, etc. It’s when will the carriers be allowed? When will it be commercially viable to return to the normal routing?”

For Jensen, however, the longer the situation continues, the industry must give serious consideration to the likelihood this could not be resolved for many years to come — a scenario that needs to be planned for.

If carriers are finally granted safe passage back through the Red Sea, the question then turns to how long will it take for operations to return to normal? The short answer, according to Jensen, is not overnight.

Instead, he believes it will take the industry as long as two to four months to get its house in order.

“Once this happens [carriers return to the Red Sea], you’re going to get massive congestion problems in Europe, because the first vessels going back through the Suez will overtake those heading round Africa,” said Jensen.

This will effectively mean twice the number of vessels arriving in Europe across the same week.

Carriers, too, will likely demand rapid turnarounds to keep at least some semblance of schedule, explained Jensen.

As a result, empties will likely be ignored, which could also lead to a temporary equipment shortage out in Asia further down the line.

“This will overwhelm port infrastructure and overwhelm inland infrastructure. It might even overwhelm the warehousing infrastructure in Europe.

“It will undeniably be good news to go through the Suez Canal — but the transition will be painful, especially in Europe.”

The advice for European ports therefore is to have a contingency plan for the moment carriers return, stressed Jensen.

Most important, he explained, will be limiting access to containers to the terminal, “especially empty containers because they are highly likely to go nowhere fast”.

Although this would push the issue inland, at least it would limit congestion within the confines of the terminal gate.

US east coast strikes

News that talks between the International Longshoremen’s Association, representing US dockworkers at east and Gulf coast terminals, had broken down in early June came as quite a shock.

The previous month, the two sides had signalled negotiations were progressing nicely.

The revelation raised the prospect of a crippling US port strike in October, just a few weeks ahead of the presidential election.

For Jensen, even if the prospect is slim, with the market squeezed as it is, further disruption is the last thing the industry needs.

“Historically, the ILA usually ends up with a deal, which is the good news.

“The bad news is, if we do get a strike, this will mean the market will get much worse than it is now, and we’ll be back to the same spiking levels seen at the worst of the pandemic,” he warned.

Decarbonisation and digitalisation

Decarbonisation and digitalisation remain high on the port agenda. However, as Hadland explained, success in both is intrinsically linked.

Put simply, digital strategies can help drive productivity gains — and the more productive you are, the less emissions and the closer to decarbonisation goals.

From a port perspective, she said digitalisation is the “low-hanging fruit” to improve port efficiency.

Whether this is through port authorities implementing just-in-time vessel arrivals systems to ensure ships spend less time at anchor; or port operators incorporating ever-more sophisticated terminal-operating systems; or using AI to predict box movements and intelligent yard planning; or vehicle booking systems to cut turnarounds at the gate... “all of that adds up” in relation to limiting emissions from terminal operations, said Hadland.

Of course, such systems are commonplace across Europe — but these initiatives are starting to expand worldwide, as operators take a more globalised view on digital strategy, explained Hadland.

Having piloted systems in one or two places, the plan is then to implement this across the whole network, whether in Africa, Latin America or North America, she said.

“We’re finally starting to see that the synergies of being part of a global terminal network are being pushed through that commonality of systems approach.”

This approach can be no better illustrated than by the initiative currently being undertaken by APM Terminals and DP World to push for the widespread electrification of container-handling equipment.

“The focus on a more joined-up digital strategy and making these small incremental efficiency gains is what’s going to get operators to their 2030 [decarbonisation] objectives and keep the industry on track,” said Hadland.

The wildcards 

Cyber-attacks

The first of our ‘wildcards’ for the port sector is one Jensen says he has raised numerous times, yet still “nobody seems to want to listen”.

Cyber-attacks — especially if as a ripple effect of the Russian-Ukraine war — should be of particular concern to ports and terminals, he said.

“My main concern is not so much about freight forwarders or shipping lines being impacted. That is painful — especially for the ones that get hit — but it doesn’t impact the global supply chain that much.”

The disaster would be if an attack compromised major container terminals, Jensen warned.

“Imagine shutting down five to 10 of the world’s largest container terminals — or just five to 10 of the largest in Europe or in the US.

“They have contingency plans and will probably be up and running again after two, three or four days. But if it is a devastating attack, the congestion this will create will be a nightmare, given the situation we’re in.”

While under normal circumstances this would be manageable, in today’s climate, there is no surplus in the system to absorb such an attack, said Jensen.

FuelEU Maritime 

The European Union’s impending carbon-intensity limit for shipping, FuelEU Maritime — effective from the start of 2025 — is a regulation for which Jensen feels the industry is once again ill-prepared.

Similar to the EU’s Emissions Trading System, IMO 2020 and the sulphur cap of preceding years, FuelEU looks set to catch many off-guard.

This, he said, is flying completely under the radar, thanks to the noise of the Red Sea crisis.

“I think everyone is underestimating the impact there’s going be and the cost it’s going to have on the shippers,” said Jensen.

Trump presidency

The final ‘wildcard’ stems from the prospect of a second US presidency for Donald Trump — an outcome that is growing ever more likely by the day.

After what transpired during his first term, Jensen envisages a period in which the US becomes increasingly isolationistic.

“That sets the stage for much larger conflicts — and, in the case of the Red Sea, it is going to be nothing compared to what might come.

“Trade war in itself is already ongoing between the US and China and is likely to be escalated no matter who wins, because both Republicans and Democrats are running on anti-China trade war platforms.

“But a Trump presidency appears much more likely to amp it up more and without much thought of the consequences.”

The Trump presidency would be tested very early on, especially by Russia and China, he explained.

Judging by the rhetoric of his first presidency, Jensen expects Trump to toe a hard line on his isolationistic foreign policies, distancing itself from its adversaries to focus on domestic affairs.

“They [the US] will sell it as a big victory; it will be seen as creating peace, as we don't want war — but the reality is going to be the exact opposite.

“We can see how easy it is to disrupt vital shipping links just by the Houthis. If this is then amped up by a much more active Russia and China — and even a much more active Iran — this will get a lot worse really quickly.”