Supply Chain Hardships in 2024?

November 10, 2023 22:08

The global supply chain got a boost after the coronavirus pandemic as businesses resumed their activities with an unprecedented number of freights travelling across the world to satisfy consumer needs.

However, feedback coming from shipping companies regarding market activity in 2024 is not as positive as investors would like. As a result of negative forecasts, some of the major shipping companies involved in the global supply chain have started to adjust their future plans to withstand a potential downturn.

If you would like to learn more about the latest updates regarding the global supply chain and what investors and traders could expect, please keep reading our article.

CNBC Supply Chain Survey Forecasts Freight Recession To Continue in 2024

On November 7th, CNBC published its Supply Chain Survey conducted among logistics executives who manage freight manufacturing orders and transportation. The survey has access to data regarding orders shippers place into manufacturing companies, including picking up products from the ports and distributing them to retailers. Thanks to this data, investors can get a glimpse of what is to come in the next 3-4 months.

The majority of logistics executives interviewed by CNBC reporters said that freight rates involving parcels are likely to fall by at least 5% in the first quarter of 2024, while only 20% of them believe that full freight rates would remain intact or rise in the same time period.

Experts note that they do see a muted demand for orders close to the Lunar New Year, which is one of the most important holidays in China. However, the survey suggests that despite dropping demand and high interest rates, the market could rebound in the second half of the next year.

Yellow And Convoy Hit The Brick Wall

It should be noted that Amazon’s head, Jeff Bezos’ trucking company Convoy has already fallen victim to the supply chain crisis as it collapsed in October 2023. Senior executives attributed the operations’ shutdown to “unprecedented freight market collapse” and “dramatic monetary tightening.”

Earlier in the summer, Yellow, a US trucking company with almost a century of history, went bankrupt although it had borrowed $700 million using a federal loan to weather the pandemic’s consequences. Yellow’s resources included 30,000 employees and 12,000 trucks. Some market analysts suggested that the company was unable to adjust to the environment and implement changes due to internal strife. According to a report by the Wall Street Journal, the trucking industry transports 75% of all freight tonnage in the United States.

AP Moller-Maersk Adjusts Strategy For 2024, Proceeds With Personnel Cuts

AP Moller-Maersk (MAERSK.A.DK), one of the largest shipping companies in the world, announced that it would cut 3,500 additional jobs, bringing the total for 2023 to 10,000. AP Moller-Maersk controls about 18% of global container trade. 

Maersk’s chief executive, Vincent Clerc, noted that “our industry is facing a new normal with subdued demand, prices back in line with historical levels and inflationary pressure on our cost base. Since the summer, we have seen overcapacity across most regions triggering price drops and no noticeable uptick in ship recycling or idling.”

Earlier in the month, AP Moller-Maersk published its financial results for Q3 2023 which came in line with expectations. According to the report published on its website, “financial results for third quarter of 2023 were in line with expectations in a difficult market environment with rates well off their 2022 peak.” In the financial guidance for 2023, its executives forecast global container volume growth in the range of -2% to -0.5% compared to -4% to -1% previously.

Hapag-Lloyd Cuts Outlook As Net Profits Slump

Hapag-Lloyd (HLAG), the world's fifth-biggest container liner, posted a net profit of 3.2 billion euros for the first nine months of 2023. The figure came in 77% down on an annualised basis, forcing Hapag-Lloyd's analysts to cut their forecast for full-year earnings.

“Results are significantly below the prior-year level due to the severe change in market conditions,” was noted in the accompanying report. Hapag-Lloyd's CEO, Habben Jensen, noted that “if spot rates do not recover, we could face some challenging quarters in this subdued market environment.”

Regarding the 2024 outlook, the German company’s head added: “We see expectations out there for contract rates that are unrealistic and. at those levels, we will not close because we are not going to close contract rates where we, for sure, lose a lot of money. We would much rather take out the cost and capacity. Expectations are still in a very wide range, but I would expect those contracts that are closed that expire at the beginning of the year will be above the spot levels we see today.”

Panama Canal Drought Affects Transportation Of Goods

Like dropping demand and rising costs were not enough problems, the drought in Panama has started to have an impact on the transportation of goods. Starting in November, the Panama Canal authorities imposed cuts in vessel traffic which is expected to reach over a 40% reduction of vessels by February due to an ongoing drought.

The problem in the Panama Canal will likely create problems to the flow of trade as 40% of all U.S. container traffic travels through there. In order to face the problem, shipping companies unload their cargo on one side of the Canal and transport it via road to the other side, causing significant delays in deliveries.

Supply Chain and Shipping Companies: Trading And Risk Management

While forecasts regarding shipping companies, transportation of goods and supply chain in general don’t seem to be particularly positive for 2024, no one can speak with certainty about the future. As the supply chain sector could face a downturn next year, there might be opportunities as well as pitfalls that beginner traders should prepare themselves for.

If you are just starting to trade, you will have to put an effort into upgrading your trading skills. Trading isn’t easy as timing, patience and knowing how to take action are imperative. Acquiring knowledge should be the first goal of a beginner trader in order to make the execution of a trading strategy as smooth as possible. Traders can find educational materials such as webinars, how-to guides, articles and examples on the internet that could help them become more confident and knowledgeable.

One thing that beginner traders should not ignore is using risk management tools as much as possible. Modern trading platforms come with a wide array of risk management tools such as stop-loss orders that minimise risks if used properly. Such tools help beginner traders not expose themselves to unnecessary risks when markets move against their targets. Risk management tools help traders mitigate potential stressful situations so learning how to use them should be at the top of the list for every beginner trader.

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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.

Miltos Skemperis
Miltos Skemperis Financial Content Writer

Miltos Skemperis’ background is in journalism and business management. He has worked as a reporter on various TV news channels and newspapers. Miltos has been working as a financial content writer for the last seven years.