![](https://www.ajot.com/images/uploads/article/_medium/alarm.jpg)
A survey with 1200 supply chain professionals aimed to understand the biggest challenges they foresee for their business in the second half of the year showed that recession in the US remains the top concern, followed by geopolitical risks and rising operating costs. The survey was conducted by Container xChange, an online container logistics platform that provides an operating infrastructure for container trading, leasing and management.
Container xChange Survey on 2023 Outlook
Recession in the US
49% of those surveyed fear a recession in the US as a key concern for the freight forwarding industry.
“Interest hikes by central banks due to sticky inflation has put the balance sheets of many lenders under pressure, essentially forcing them to mark down assets or sell them off at a loss to cover short-term liquidity needs,” said Christian Roeloffs, cofounder and CEO of Container xChange.
The collapse of two US lenders in March caused a global banking crisis that spread to many economies, sparking fears of contagion. Emergency measures were taken by the US Federal Government and other agencies to backstop the financial system, but stress in the banking sector has grown. This has led to increased odds of a US recession within the next 12 months, according to Goldman Sachs, with implications for the market.
“The Federal Reserve has announced that it will stop raising interest rates after the last hike of 25 basis points last week, and the European Central Bank is also becoming cautious.”
“The bank crisis, compounded by the troubles in the real estate sector, negatively impacts interbank lending. Higher cost of interbank lending will lead to tight access to credit for the real economy and this in turn leads to higher risk of recession.”
“This vicious circle of increasing interest rates, rising instability in the banking sector, tightened access to credit, falling commercial real estate values and eventual recession is underestimated by the overall market, and has significant implications for supply chains,” commented Roeloffs.
Geopolitical tensions to cause fractionalization of trade blocks
The flaring geopolitical tensions have flared as on the one side we have ramifications of Russia’s invasion of Ukraine, on the other side we witness rising tensions between China and Taiwan.
While China has pioneered investments over the past twenty years into infrastructure projects, Bridges, roads, terminals, and ports in South America and Africa, Taiwan is the biggest manufacturer of semiconductors. It is worth considering how these investments and the dependency of those countries will impact global trade.
“These high-risk geopolitical tensions could potentially lead to the fractionalization of trade blocks and potentially a world where trade becomes less efficient because you cannot trade with everybody anymore. Trade becomes restricted to blocks. Currently, it looks like there might be two major blocks but in the future, there might be more. This will then limit trade and make it less efficient.” added Roeloffs.
Rising Operating costs
We know that the demand for freight declined significantly after it reached its peak in September 2021. The profit margins reported in the Q1 of 2023 by shipping lines were still strong because of the pre-negotiated contract rates but we do expect these to slide significantly. As the contract negotiations are underway, we will soon see revised rates which will then impact the profitability of the shipping lines in the second half of 2023 and into the year 2024.
Commenting on the challenges of the rising OPEX costs, Aaron Callahan, the owner of a container trading company based in the US shared with Container xChange, “The container market, in general, is very volatile currently, it changes every week, so there is risk in predicting what will turn out after six months. We face high demurrage and detention charges, operating costs, and other charges pertaining to container storage and transfers. The demand is not coming back anytime soon, on the other hand, the capacity and supply of containers is abundant. Most of us are trying to build resilience and consistency in our operations. This is business critical.”
“There is a shortage of depot space too,” Aaron added.
The Bright side
There is some positive news in the container shipping industry, particularly in Asia. Despite the current oversupply of equipment, freight rates and container prices appear to have stabilized in Asia showing resilience in the intra-Asia trade routes. This could be good news for businesses that rely on container shipping as it means they can anticipate more predictable shipping rates and potentially more stable supply chains.
Supal Shah from Arcon Containers, India commented on the Asia outlook, “The freight rates and container prices seem to have bottomed out; I don’t see a big change on either side as there is a huge supply of equipment. On the positive side, Chinese factories are not producing too many new units so over the long run this will have a positive impact on demand and supply and price of the containers.”
Survey methodology:
The survey was conducted by Container xChange in the month of April 2023. The questions were posed to freight forwarding companies, container leasing companies, container traders, NVOCCs, leasing companies and shipping lines. A total of 1200 supply chain professionals responded to the survey. The purpose of the survey was to understand the key challenges and fears that the industry is facing and foreseeing for the coming rest of the year. The survey was conducted online through objective questions which are mentioned in the graphs as well as through qualitative interviews with customers of Container xChange.