The world’s largest shipping company doesn’t talk like a recession is coming

  • MSC, the world’s largest container line, says the shipping container market will grow in the second half of 2023.
  • The shipping line, widely seen as a barometer of global trade, says North American and European stocks are still high, but signs from China are encouraging.
  • CEO Soren Toft told CNBC that despite the inflation, MSC sees the U.S. economy “as very strong and very positive.”

MSC, Mediterranean Shipping Company, the world’s largest ocean freight company, told CNBC it expects positive signals for the global economy from trade demand, but it will be months before that a rebound does not set in.

In recent quarters, a sharp drop in global demand and significant supply chain disruptions have swayed the market, but MSC CEO Soren Toft told CNBC the shipping giant is positive. for the rest of the year. “I would say we’re moderately optimistic about the recovery of the world. I think when we get to the middle of this year, we’ll probably start to see some trade movement,” Toft said. “I guess when we get through the second quarter and the middle of the year, we’ll start to see some positive signs.”

The Swiss-based shipping company, widely seen as a barometer of global trade, has a 17.5% market share in container traffic, according to Statista.

Toft said if inventories are still too high in North America and Europe, leading to lower trade volumes, once inventories are reduced, freight orders will rebound.

“We still see the United States in very positive shape,” Toft said. “It’s a net exporter of energy. … I think they’ve been able to slowly reduce inflation and the labor market is very strong. There’s basically full employment. So we still consider the United States- United as very strong and very positive.”

Chris Ratcliffe | Bloomberg via Getty Images

Toft said he was also starting to see signs of strength in the China-Europe trade route, which is a sign of consumer demand.

“The feedback after Chinese New Year has been positive,” Toft said. “We are now seeing good healthy volumes from China to Northern Europe, so we think and hope that is a trend for the coming months.”

The latest data from China’s manufacturing economy showed a rebound from contraction to expansion.

Data from SONAR FreightWaves shows slow recovery in global freight orders after Chinese New Year. A resumption of orders is normal given the pent-up demand for orders.

During the Chinese New Year, shipping carriers reduce the number of departures from China due to holidays and less cargo leaving manufacturing plants. Logistics officials told CNBC that some Chinese manufacturers have opened this year in stages to avoid any Covid-related shutdowns, with some welcoming workers in early March.

Ocean freight bookings depend on manufacturing orders. U.S. retailers cut manufacturing orders by up to 40% as consumption slowed and warehouse inventories slowed to historic lows. Lack of storage capacity is also pushing rates to historic highs, inflationary pressure that ripples through to the consumer.

Ocean freight rates, which were the biggest inflationary pressure on commodities, fell sharply to return to pre-pandemic levels.

The combination of weaker demand and low prices has led shipping lines to cancel sailings. By limiting the number of crossings, shippers reduce the vessel’s available capacity to put on a container. Ocean freight rejections have increased, meaning containers full of produce for the current or upcoming season are being delayed. Logistics managers fear this will create a bottleneck in their supply chain.

In a recent note to customers, shipping company HLS Transpacific wrote: “Carriers are now forced to consider suspending services from Asia where demand is particularly weak and the outlook shows no signs of improving.” .

But Toft said: “We are close to a normalization of the markets.” Although he added, “There could also be a peak up and a peak down depending on what’s happening with demand.”

At a time when shipping carriers are increasingly canceling sailings due to dwindling ocean freight orders, MSC has responded by increasing the size of its fleet.

MSC has expanded its container fleet through a combination of new container ships and a series of second hand and charter vessel acquisitions.

“MSC has spent decades building lasting relationships with a long list of satisfied customers,” said OL USA CEO Alan Baer. “The current strategy appears to be one in which MSC will defend its customer base through aggressive pricing and a capacity position. Losing and regaining a customer can be a costly and time-consuming process.”

MSC recently announced the planned end of its shipping alliance with Maersk, called 2M, in 2025. Maersk invests its profits in ground transportation and warehouse expansion. 2M, along with the other shipping alliances, have canceled sailings in a bid to halt falling freight prices.

“I don’t see the era of alliances as over,” Toft said. “We were happy to continue the partnership with Maersk, but Maersk wanted to follow a different path and it was their right. Now that does not mean that we will not cooperate with anyone in the future. We can choose in certain roads to go on our own, and maybe in others we will still do some alliance type structures.”

He said the alliances have delivered many efficiencies, with significant benefits passed on to customers.

MSC is actively expanding its presence in the United States through investments in ports, warehouses and trucks.

MSC’s port operating subsidiary, Terminal Investment (TIL), is expanding its port portfolio on the US East Coast, opening new container terminals in New Orleans and the Port of Baltimore.

Bill Doyle, executive director of the Port of Baltimore, explains that MSC’s investment in the port was only a matter of time.

“Port investment and customer base dictate a shipping carrier’s port diversification,” Doyle said. “MSC has seen the increase in cargo entering the port thanks to our investment in managing larger vessels efficiently,” he said.

Over the past decade, Doyle described as “a bonanza of distribution centers” built for the Port of Baltimore – Amazon, Floor and Decor, Home Depot, Wayfair, FedEx, Starbucks, among them. “In 2025, we will be able to double the CSX rail line from Baltimore to Chicago. Ocean carriers want ports that can grow with trade,” Doyle said.

MSC is also investing in the construction of terminals in ports in countries such as Vietnam, one of the main beneficiaries of local manufacturing or “shoring friend” outside of China. Apple would migrate its manufacturing of MacBooks to Vietnam.

Over the summer, the company announced a $6 billion deal with the government of Ho Chi Minh City (HCMV) to build the country’s largest port at Can Gio.

From an economic point of view, these agreements reflect the growth prospects of freight companies. Ocean carriers do not build terminals where there is no room for growth. The Port of Can Gio project consists of seven phases. The first phase starts in 2024 and enters service in 2027. The port would be fully operational by 2040.

Vietnam is a very important market for us,” Toft said. “There is no doubt that Southeast Asia is gaining importance in the supply chain.

But he added that when asked if the era of globalization is coming to an end, “I say absolutely not. I think in the future we will see what I call a more distributed where sourcing is from more places, China, but then Southeast Asia and India.”

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