A faster-than-expected decline in freight rates and easing congestion at ports could see spot rates for container shipments fall to 2019 levels as early as the end of this year, according to a new HSBC research report.

On Wednesday, the global bank cut its demand forecast for 2023 and raised its capacity supply forecast for 2022-2024 to reflect that easing congestion at ports is freeing up bound capacity to the market.

"As a result, we now expect the Shanghai Container Freight Index (SCFI) to bottom out in mid-2023 and shipping industry profitability to bottom out in the second half of 2023." Parash Jain, head of shipping, ports and Asian transport research at HSBC, wrote in the global Container Shipping report. It had previously forecast that sea freight rates would bottom out in 2024.

The SCFI index is down 51 percent since the end of July, or 7.5 percent a week, and current spot rates are already well below contracted rates signed at the start of the year, especially on trans-Pacific routes, Jain said. "We believe that weaker than expected demand, faster congestion relief, and price competition for access to marginal goods contributed to this decline."

At the beginning of October, container ship orders had reached nearly 7.1 million TEU. Alphaliner data shows new ships with a combined capacity of 2.34 million TEU will be delivered next year, compared with 2.84 million TEU in 2024. The two-year average is 2.6 times the average of the past 20 years.

According to Drury, this additional capacity combined with the potential to be injected into the market as port congestion improves could result in an effective net increase in fleet capacity of up to 11.3% in 2023. Meanwhile, Mr Drury expects demand to grow by just 1.9 per cent.

In this supply-demand imbalance, freight rates will continue to fall, Jain said. "At a weekly decline rate of 7.5%, spot rates could reach the 2019 average spot rate level by the end of 2022. "We expect capacity constraints to become evident during this period, especially when rates are below costs."

With rates falling so sharply, the HSBC report said there were "significant downside risks" to shipping lines' profits over the next two years. The bank expects shipping companies' profits to remain resilient in the third quarter of this year, but to decline from the fourth quarter onwards and continue into 2023.

In September, HSBC estimated that excess capacity and falling demand would cause shipping companies' profits to fall by more than 80% over the next two years.

Meanwhile, potential changes in shipping and logistics companies' third-quarter results and full-year guidance could provide clues as to whether shipping companies will be able to defend contract rates in the renegotiation, Jain said.

Separately, the return of capacity after the golden week in the first week of October, or carriers extending the suspension into the fourth quarter, could determine whether freight rates stabilize soon, HSBC said in a report.

According to Sea‑Intelligence's latest report yesterday, the weekly capacity deployed by shipping companies dropped significantly in weeks 41-43. However, even with trans-Pacific capacity falling by an average of 26% to 31% and Asia-Europe by 19% to 27%, rates still fell sharply.

In addition, Alphaliner said recently that port congestion was no longer enough to prevent a sharp drop in container rates. Spot freight rates between Shanghai and Northern Europe fell 48.5 per cent in the third quarter, although Europe's port congestion is still far from resolved.