2023 JPJC J2 H2 EC Prelim P1 QP [Final]

Question 1: A balancing act in the container shipping industries Container shipping services is a mode of transportation used by shippers to transport their cargo from the seaport to the destination through contain er carriers. Container carriers are exclusive asset class owned by container shipping companies because they require significant capital and expertise to acquire and operate. Moreover, the con tainer shipping industry is highly regulated, with strict safety, security, and environmental protection requirements. Figure 1: Global shipping freight rates Source: www.statista.com, May 2023 Extract 1: Container shipping in times of Covid-19 At the start of the coronavirus disease of 2019 pandemic, expectations were that seaborne trade, including containerised trade, would experience a s trong downturn. However, changes in consumption and shopping patterns triggered by the pandemic, including a surge in electronic commerce and lockdown measures, have led to increas ed import demand for manufactured consumer goods. As of the third quarter of 2020, le ssening of lockdown measures and varying speeds of recovery worldwide, as well as stimulus p ackages supporting consumer demand and inventory-building in anticipation of new waves of the pandemic, contributed to a further increase in containerised trade flows. The increase in demand was more substantial than expected and not met with a sufficient supply of container shipping capacity. Empty containers to move exports from China to destinations abroad became unavailable. The reasons for this shortage were manifold. Empty containers were left in places where they were not needed, and repo sitioning had not been planned for. Consequently, the mismatch between demand and supply for empty containers was exacerbated. Source: UNCTAD, 2021

2 Extract 2: Container shipping companies face losses post-Covid After almost two years of skyrocketing freight rate s that offered container shipping companies some respite in a pandemic-disrupted maritime suppl y chain, current freight rates sunk beyond the comfort threshold where they are now counting losses. As global trade continues to decline due to the Russia-Ukraine war shocks, freight rates continue to decrease. In the second half of 2022, cargo tran sportation in container carriers has dwindled by 20% to 50%. With reduced cargo volume, many cont ainer carriers transport less than their total carrying capacity, while some are forced to stay anchored with no shipment deals. As a result, container shipping companies find themselves counti ng losses in operating their container carriers. In addition, increased operating costs from the lab our shortage and pursuit of decarbonisation, further swelled by the fuel-oil price hike, kept the container shipping companies from hitting profit. If this situation continues, they will have to stop operations. Source: Hellenic Shipping News, January 2023