Video interview with Lars Jensen: Shipping faces two extremes

Last week WorldCargo News interviewed Lars Jensen, CEO of Vespucci Maritime and a respected analyst in the shipping sector, at TOC Europe 2024 about the current state of the container shipping market.

Speaking at a panel titled Market & Trade Outlook at TOC Europe 2024 Jensen highlighted the trend of escalating freight rates, which have soared to pandemic levels of US$6-8,000 per TEU and are projected to potentially reach up to US$15,000 within the next six months.

The surge in freight rates comes amidst ongoing security challenges in the Red Sea, prompting vessels to reroute around the Cape of Good Hope. This strategic shift has resulted in congestion at Mediterranean and Asian ports, exacerbated by shipping lines utilizing gateway ports for container transshipments and omitting ports to maintain schedule adherence.

Jensen underscored that the market’s volatility, characterized by unpredictable fluctuations and recurring supply chain crises, is not something companies can’t avoid but must navigate better than their competitors.

Pandemic level teritory

“We’re in the pandemic-level territory,” he added, noting that initially when the situation in the Red Sea began, the market had excess ship capacity to circumnavigate Africa. However, this also means there is currently no surplus capacity to manage a potential new crisis on top of existing challenges. The latest port congestion, with vessels waiting up to a week in Singapore and the East Mediterranean, exacerbates this capacity strain. During the pandemic, 14% of container shipping capacity was unavailable due to port congestion, and we’re heading towards similar conditions again, Jensen added.

Adding insult to injury, demand is rising, further increasing the volume being pushed into a supply chain already stretched thin.

In addition to increased freight rates, charter periods are also being extended to secure capacity and new services with smaller ships are being launched. As explained, should demand trends continue upward, it is likely that pandemic freight records might be broken.

Outlook unstable

Speaking to WCN about the market outlook for the rest of the year, Jensen sees a very binary scenario unfolding with on the one hand freight rates being extremely high, and on the other hand a potential market crash.

“I do not see an outlook with a stable market, because either the Red Sea situation continues and we continue to see this very tight market, or we get peace and get back to the Red Sea, but then we will be in a market with significant overcapacity and freight rates will collapse,” Jensen said. “There are two, different, extreme scenarios, but I don’t see a stable scenario in there.”