Though economic contraction creates a raft of issues, a recession will see demand for freight pull back
Incoming recessions in large overseas markets are expected to ease pressure on the global shipping industry, or in other words, “make it boring again”.
Speaking at Export NZ’s Go Global conference in Auckland yesterday, New Zealand Cargo Owners Council policy advisor and Port Company CEO Group chair Charles Finny said before the emergence of Covid-19, New Zealand had benefitted from stable “boring” shipping services.
Despite Ports of Auckland predicting a return to shipping windows in the first quarter of 2023, Finny cautioned anyone expecting a quick return to 2019 levels of shipping, “My view is that 2023 will remain challenging, but maybe 2024 will be better.
“While it's bad from most other perspectives, I think that the pending recessions in the United States and the EU, and the slowdown in China might actually help us finally regularise the national sea freight and air freight markets.”
The combined impact of the recession resulting in lessened demand for goods and added shipping capacity is expected to take shipping closer to normal.
Shipping rates have begun to ease on major Northern Hemisphere lines, but New Zealand, as a small, out-of-the-way market, hasn’t had a look in on that yet other than a slight reduction in spot prices. Although those savings have been largely eaten up by increases in wider supply chain costs.
Finny’s comments echoed statements from shipping giant Maersk earlier in the month where it warned of “plenty of dark clouds on the horizon”.
Maersk predicted the incoming recession, first in Europe then in the United States, would reduce container demand by between 2 percent and 4 percent this year.
The Copenhagen-based business, accused of profiteering with high freight rates through the pandemic by multiple jurisdictions, had previously forecast for changes in container demand of between 1 percent and negative 1 percent.
Worse place
Kotahi Logistics head of logistics Nick Churton said New Zealand is in a worse place than it was 12 to 18 months ago in terms of scheduling of ships and congestion at ports.
He said New Zealand was a lag market and pressure would start coming off in 12 to 18 months with continuous improvement in ships arriving on schedule as carriers’ investments come through and congestion eases.
Ministry of Transport supply chain strategy manager Harriet Shelton said the shipping and logistics sector had proven itself to be very adaptable but was limited by infrastructure issues including long lead times for ships and the difficulty expanding ports (in July, a 10-day Environment Court hearing for Port of Tauranga’s extension was delayed until March 2023).
She said the sector wasn’t keen on too much government intervention, “We know that we need to be able to facilitate the way the sector needs to transform, but not in a way that actually ends up with us intervening too much and risk distorting the market.
“They know that pretty much anything that we do to improve the way that sector works is actually going to come at a cost and so that is a really difficult issue to grapple with when we all know that customers are not necessarily willing to pay those extra costs.”
Despite increased scrutiny and the in-your-face impact of supply chain shortages in recent years, Shelton said the public as a whole didn’t understand the valuable role that freight plays in their lives and there were social licence issues to contend with on top of everything else.
Earlier this week Finance Minister Grant Robertson said he had asked the Productivity Commission to probe the resilience of the New Zealand economy to supply chain disruptions.
He said local supply chains had shown resilience through the pandemic, but there were still challenges and the inquiry would identify vulnerabilities and ways to improve how the economy could stand up to persistent medium-term supply chain disruption.
