- MSC, the world’s largest container line, says the sea container market will grow in the second half of 2023.
- The shipping company, widely regarded as a barometer of global trade, says inventories in North America and Europe are still high, but signals from China are encouraging.
- CEO Soren Toft told CNBC that MSC views the US economy as “very strong and very positive” despite inflation.
MSC, Mediterranean Shipping Company, the world’s largest ocean freight line, tells CNBC it expects positive signs for the global economy from trade demand, but it will take months for a recovery to begin.
In recent quarters, a sharp drop in global demand and major supply chain disruptions have impacted the market, but MSC CEO Soren Toft tells CNBC the shipping giant is positive about the rest of the year. “I would say we are moderately optimistic that the world is getting back on track. I think by the time we get to mid-year, we’ll probably start to see trading movement,” Toft said. “I would suspect that by the time we get through the second quarter and mid-year, we’ll start to see some positive signs.”
The Switzerland-based shipping company, widely regarded as a barometer for world trade, has a 17.5% market share in container traffic, according to Statista.
Toft said while inventories in North America and Europe are still too high and trading volumes are falling, freight orders will rebound once inventories fall.
“We still see the US in very positive shape,” said Toft. “It’s a net energy exporter. … I think they’ve been able to bring inflation down slowly and the job market is very strong. There is basically full employment. So we still see the US as very strong and very positive.”
Chris Ratcliffe | Bloomberg via Getty Images
Toft said he’s also starting to see signs of strength in the trade route from China to Europe, which is a sign of consumer demand.
“The return after the Chinese New Year has been positive,” Toft said. “We are now seeing good, healthy volumes coming from China to Northern Europe. So we believe and hope this is a trend for the coming months.”
The latest data from China’s manufacturing economy showed a recovery from contraction to expansion.
SONAR FreightWaves data shows the slow recovery in global freight orders after the Chinese New Year. Picking up the orders is normal in view of the need to catch up on orders.
During the Chinese New Year, shipping companies reduce the number of departures from China due to the holiday and less cargo leaving manufacturing facilities. Logistics managers told CNBC that some Chinese manufacturers have been opening in stages this year to avoid Covid-related closures, with some workers being welcomed back in early March.
Sea freight bookings are dependent on production orders. US retailers had pulled back manufacturing orders by as much as 40% on consumer weakness and inventories at historic levels. The lack of storage capacity is also driving rates to all-time highs, inflationary pressures being passed on to consumers.
Ocean freight rates, which put the most inflationary pressure on products, have fallen sharply to pre-pandemic levels.
The combination of weaker demand and soft prices has led to shipping companies canceling trips. By limiting the number of crossings, shippers reduce the available vessel capacity that can be loaded onto a container. Ocean freight rejections have increased, causing containers filled with produce for the current or upcoming season to be delayed. Logistics managers fear this will create a bottleneck in their supply chain.
In a recent note to customers, HLS Transpacific said, “Airlines are now being forced to consider suspending services from Asia, where demand is particularly weak and the outlook shows no sign of improving.”
But Toft said, “We’re on the verge of market normalization.” However, he added, “There could also be a spike and a dip depending on what happens with demand.”
At a time when shipping companies are increasingly canceling trips due to a drop in ocean freight orders, MSC has responded by expanding its fleet.
MSC has expanded its container fleet through a combination of newly built container ships and a series of used and charter vessel acquisitions.
“MSC has spent decades building lasting relationships with a long list of satisfied customers,” said Alan Baer, CEO of OL USA. “The current strategy appears to be one where MSC will defend its customer base through an aggressive pricing and capacity position. Losing and winning back a customer can be a costly and lengthy process.”
MSC recently announced the end of its ocean freight alliance with Maersk, dubbed 2M, in 2025. Maersk invests its profits in land-based transportation and warehousing expansions. 2M, along with the other ocean alliances, has canceled voyages to stem the fall in freight prices.
“I don’t see the age of alliances as over,” Toft said. “We were happy to continue the partnership with Maersk, but Maersk wanted to go down a different path and they had every right to do so. Now that doesn’t mean we won’t work with anyone in the future. We can choose some paths that we will take alone, and maybe some alliance-type structures will still work in others.”
He said alliances have driven many efficiencies, with significant benefits being passed on to customers.
MSC is actively expanding its presence in the United States through investments in ports, warehouses and trucks.
MSC’s port operations subsidiary, Terminal Investment (TIL), is expanding its port portfolio on America’s East Coast, opening new container terminals in New Orleans and the Port of Baltimore.
According to Port of Baltimore executive director Bill Doyle, MSC’s investment in the port was only a matter of time.
“Port investment and customer base dictate a shipping company’s port diversification,” Doyle said. “MSC has seen an increase in cargo coming into the port as a result of our investment to efficiently handle the larger vessels,” he said.
In the last decade the Port of Baltimore has built what Doyle called a “gold mine of distribution centers” – including Amazon, Floor and Decor, Home Depot, Wayfair, FedEx, Starbucks. “By 2025, we will be able to double stack on the Baltimore to Chicago CSX rail line. Ocean carriers want ports that can grow with trade,” said Doyle.
MSC is also investing in the construction of terminals in ports in countries like Vietnam, a major beneficiary of near-shoring or “friend-shoring” manufacturing outside of China. Apple is reportedly shifting its production of MacBooks to Vietnam.
Over the summer, the company announced a $6 billion deal with the Ho Chi Minh City Government (HCMC) to build the country’s largest port at Can Gio.
From an economic perspective, these deals reflect the growth prospects of the freight companies. Shipping companies do not build terminals where there is no room for growth. The Can Gio port project consists of seven phases. The first phase will start in 2024 and go into operation in 2027. The port is expected to be fully operational by 2040.
“Vietnam is a very important market for us,” said Toft. “There is no doubt that Southeast Asia is becoming more important in the supply chain.”
But he added, when asked if the era of globalization is coming to an end, “I answer absolutely not. I think in the future we’re going to see what I call a more distributed supply chain, with sourcing happening in more locations, in China, but then Southeast Asia and India.”
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