No cheerful news this morning on the international freight front. There’s a global economic slowdown in progress which is being exacerbated by natural weather cycles, and potentially threatened by geopolitical events.

What a mess.

Last night Danish shipping giant Maersk announced a steep dive in profits for their third quarter compared to last year’s numbers. The heady days of astronomical pandemic shipping quotes seem to be at an end, with plenty of container space available now for transporting cargo. But there’s no freight orders to fill up the boats – volume isn’t stabilizing. It’s declining.

“Our industry is facing a new normal with subdued demand, prices back in line with historical levels and inflationary pressure on our cost base,” CEO Vincent Clerc said in a statement, adding that overcapacity in most regions had driven down prices.

Maersk maintained full-year EDITDA (earnings before interest, taxes, depreciation, and amortization) guidance of $9.5 billion to $11 billion, but said it expected it to come in at the lower end of this range.

Third-quarter revenue dropped from $22.8 billion in 2022 to $12.1 billion.

…A surge in demand and mammoth supply chain challenges during the pandemic saw freight rates soar, but this trend has now cooled amid a gloomy macroeconomic picture.

Just last week I wrote about how Maersk had divested itself of US Navy grey hull and tanker contracts. Now I’m wondering if that was in preparation for the announcement which came with the earnings numbers. Maersk is also laying off over 10,000 people as part of their cost-cutting measures.

…The company is accelerating cost and cash containment measures as a result, Clerc said.

The job cuts, which will see its headcount reduced from 110,000 in early 2023 to below 100,000, are expected to result in savings of $600 million in 2024 compared to 2023.

And there are few analysts who are predicting a shipping recovery any time soon.

…“If you look at the order book and what is going to come over the next couple of years, I think we’re probably settling in for a very subdued and pressured environment for two to three years ahead,” [Maersk] Chief Executive Officer Vincent Clerc said in an interview with Bloomberg TV’s Mark Cudmore and Tom MacKenzie.

…This year, global economic growth has lost steam and companies are working through existing inventories instead of transporting new goods to Europe and the US. At the same time, an oversupply of vessels is building up on the market.

…The downturn in the industry is set to be deeper and longer than the market expects, Goldman Sachs analysts warned in a research note last month, repeating a recommendation to sell Maersk stock. According to Bloomberg Intelligence, Maersk may have to wait until 2025 before earnings will grow, amid weak rates.

Compounding shipping challenges is a storm at sea – or actually the lack thereof. The El Niño induced drought ravaging the Panama Canal shipping lane – which had a 200 ship bottle-neck in August due to low water levels – has only produced more misery as months passed.

Nov 30 is the official end of the hurricane system. The area has yet to catch a single break from a tropical system passing through offering relief to the parched rivers that feed Gatun Lake. November also marks the end of the rainy season in the country, so it has been a double disaster, water-wise. This is the worst drought in 70+ years.

…This means that for the year 2023, water consumption has surpassed Gatun lake intakes from rainfall and rivers, hence the Canal has had to maintain acceptable levels for operations through water accumulated during last year’s rainy season and transfers from the Alhajuela lake.

…Because of the El Niño phenomenon, the average accumulated rainfall in the watershed for 2023 is 25.6% less than the average over the past 73 years.

Seven decades ago, the Canal wasn’t handling the super tankers with their enormous drafts it does now. Because the levels at Gatun Lake are so shallow, the Canal Authority has restricted shipping traffic to a single file, maximum number of vessels per day in order to avoid a grounding and blockage of the channel, as well as conserving water used in the lock mechanisms.

As of today, they’re cutting the number of ships allowed through daily even further. A necessity for sure, but it is going to raise havoc with shipping schedule times and costs per cargo load. Boats pay hefty additional fees to be one of the few making the transit and those will only become more expensive as the number gets smaller. It will also almost completely eliminate smaller shippers whose cheaper cargo can’t justify paying the exorbitant transit fees.

It also means there are already loaded shipping containers and vessels idling in ports who can’t leave for their destinations because they cannot make the transit.

Starting Friday, the Panama Canal Authority is implementing additional vessel reductions in an effort to conserve water as a drought exacerbated by a severe El Nino weather system continues to plague water levels in the locks of the key global trade conduit.

According to Panama Canal authorities, the drought requires them to reduce the number of daily transits from 29 to 25 ships and in the proceeding weeks, they will reduce vessels transits even more until it declines to 18 ships a day in February. That represents between 40%-50% of full capacity. Under normal conditions, between 34-36 vessels traversed the canal daily. The drought and vessel reductions are having a major impact on the flow of trade, according to data from CNBC Supply Chain providers.

According to Project44, shipping containers going through the Panama Canal to the U.S. East Coast are being delayed in select ports, with the Port of Charleston seeing the longest in delays.

The Panama Canal saves everyone’s cargo a tremendous amount of time and heartburn. Losing it as a viable, reliable shipping short-cut is going to cost everyone. In the delivery world, time is money.

…The Panama Canal is popular for East Coast trade because it is faster than other options. The shipping time for ocean cargo from Shenzhen, China, to Miami, Florida, using the Suez Canal takes 41 days. Traveling through the Panama Canal takes only 35 days.

The other problem is going to be geopolitical. When the only default short-cut is the Suez Canal and…by the way – how’s that region doing there now?

One fellow politely calls them “significant geopolitical headwinds.”

…“Coal is transported through the canal but the more important energy item is LNG (liquefied natural gas) which the U.S. exports around the world, especially to Asia,” said Davis. “Many agricultural products are shipped both from, and to, the U.S. The canal is a major corridor for container ships, so products coming to the U.S., from China for example, are being delayed.”

Containerships have priority in crossing the canal due to their contracts. The most impacted vessel types are wet bulk and dry bulk vessels, Ashiq said.

“This may start a shift in bookings for Transpacific freight destined to the U.S. East and Gulf through the Suez Canal, which is located in a region with significant geopolitical headwinds,” said Paul Brashier, vice president of drayage and intermodal at ITS Logistics.

Nothing looks tastier than an LNG tanker sitting like a big fat, explosive duck sitting in the Suez to completely gum up world wide shipping.

Perhaps you remember what one YUGE container ship did when it grounded in the Suez, stayed there for three whole weeks, and backed commercial shipping up world-wide?

They’re trying to avoid that in Panama and hopefully no one gets it into their heads to take advantage of the increased traffic to cause a little mischief in the Sinai.

Even without any further misadventures thanks to “geopolitical headwinds,” the inflationary pressures on the price of goods is going to be enormous.