The good times have been very good for the global shipping industry. Now, one of the biggest shippers says those times are ending. The Danish company Maersk announced on Wednesday that it expects container demand to decline between 2% and 4% this year, which could be an indicator of our economic future.
One reason? About 90% of global trade is carried over water, and goes on ships about six to nine months before they reach retailers, according to Ken Hoexter, a research analyst covering transportation at Bank of America. Those goods include furniture, clothes, and electronics.
So when a shipper like Maersk says there will be less demand, “it is a direct insight on what’s going to hit our shores,” Hoexter said.
Or not hit them — which Maersk says could be a sign of weakening consumer spending and a possible recession. It could also simply be a signal that we’ve bought a lot of stuff already.
“During 2020, and 2021, the government’s handouts made the adults believe that there really is a Santa Claus. And it accelerated spending in ways that one had never imagined,” said Satish Jindel, president of SJ Consulting, a transportation consulting firm that advises major shipping companies.
That meant retailers needed extra goods to meet demand.
“So shippers generally went a little bit higher with their inventory levels, because they didn’t want to miss sales,” said Chris Wetherbee, a transportation analyst at Citigroup. “That has a hangover as we move into a sort of slower demand environment.”
Now, many warehouses are still packed with inventory, according to Phil Levy, chief economist at Flexport, a logistics platform that works with most of the major shippers.
“In reality, we have enough stuff brought into the country already that you could maintain pretty high levels of consumption and see much more dramatic cuts in shipping than that [2 to 4%],” said Levy.
These shippers also ordered a lot of new ships when demand was high, Levy added. They’ll be coming online over the next two years.
That means there will be even more space available for containers. And it’s hard to know if consumers will have the money — or the desire — to fill that space up.
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