Vehicle Shipping - Container vs RoRo: Market Trends

In a series of posts we will explore the current situation of the RoRo and container shipping market, look at current capacity and pricing dynamics, dip into various trends in the vehicle shipping industry, and attempt to make some predictions of the future of these industries in relation to global vehicle transport. We start off the first post by looking at market trends in the automotive industry which have factored into how global car transportation has developed over the past years, before exploring the current state of the container and RoRo markets.

The Automotive Market

Annual global car sales dropped significantly as Covid hit in 202. The environment which was created during the first year of the pandemic, both within the automotive industry and the shipping industry, had us dealing with a shortage of new production cars as manufacturing plants closed doors and the global shipping sector ground to a halt. As the new reality dawned on consumers, a rapid growth in demand for second-hand cars arose as the demand for personal transport which did not include public transportation materialized.

*Million vehicles sold per year

Another major trend which is driving the industry today is the growth of electric vehicles, from only around 2.3 million cars in 2019, to well over 10.5 million in 2022. The emergence of China as one of the major car exporting countries has also contributed to an increase in demand for transport on the Asia -> Europe deep-sea shipping lane, as well as on the short-sea lanes within Asia. This has been an important driver for growth among Asian, and particularly Chinese, shipping lines which focus on car transport.

The RoRo Market

The global RoRo Shipping market was valued at US$ 24.79 billion in 2022 and is anticipated to reach US$ 35.34 million by 2030, witnessing a CAGR of 5.2% over this period. The influence of COVID-19 and the Russia-Ukraine War were considered while estimating market sizes.

The global vehicle carrier fleet totaled 592 vessels with more than 4,000 car equivalent unit (CEU) capacity. In 2022, two newbuilds were delivered and one vessel was recycled. During 2022, there were 54 new orders of vessels above 4,000 CEU. This resulted in an orderbook at the end of 2022 of 107 vessels with more than 4,000 CEU – the equivalent of about 21 percent of the active fleet. Most of the orderbook is scheduled for delivery after mid-2024. The global car carrier fleet (with size >1,000 car equivalent units, “CEU”) totaled 760 vessels with a capacity of 4.02m CEU at the end of Q2 2023, an increase of only 3 vessels since Q2 2022.

The RoRo market is expected to be at full utilization rate during 2023 and in the years to come due to the limited number of new vessels joining the fleet, continued congestion and solid cargo volumes. Stronger markets, and especially the high demand for electric vehicles has dramatically increased export volumes from China who have been well positioned to grow in this segment. China’s car exports surpassed Japan during the three first months of 2023 when 1.07 million cars were exported, making China the worlds largest car exporter in volume of vehicles.

The Container Shipping Market

Container freight rates fluctuated significantly from January 2019 to June 2023. In 2021, global rates surged, peaking near $10,400 in September. By June 2023, the global index had fallen to about $1,500. The global supply chain, a delicate system, relies on multiple functioning links. Disruption to one link can trigger cascading effects. The COVID-19 pandemic had a profound impact on industries and supply chains, particularly in container shipping. Port closures, labor shortages, and container scarcity hit the shipping industry hard. Operating costs rose, but freight rate surges didn't just cover expenses; they led to record profit margins. Major container shipping firms saw over 56% average profit margin in Q3 2021, up from around 8.5% two years earlier. Profits are being used to enter new sectors of the logistics market, as well as to expand capacity in the global fleet, and these new ship deliveries are currently entering the market.

China's exports have declined for the eleventh consecutive month, with China-US and major Asian economies' exports to the US also dropping. The decline in China's exports is the largest since COVID-19 emerged. In June, China's exports fell by 12.4%, surpassing the expected 9.5% decrease. Imports also dropped by 6.8%, worse than the projected 4% decline. Exports to the US fell around 24%, while imports declined 4%, and exports to the ASEAN bloc fell 17%. South Korea's exports fell 14.2%, notably to China by 26.5% and the US by 4.4%. Vietnam's exports dropped 11.9% in Q1 2023 and further by 17.1% in Q2 compared to April 2022, impacting GDP growth. Drewry's World Container Index saw a 4% weekly drop in July for the Asia-North Europe route. Exports from China to the Middle East, Mexico, and Latin America are growing, potentially counteracting US export restrictions. Maersk plans a 49% FAK rate increase on the Asia-North Europe route, addressing excess capacity. India-US trade routes experienced general rate increases, while India-Europe contract rates declined 10-20%. Major container lines plan "steep" rate hikes on the India-Europe trade lane from August.

In Review

The automotive industry took a hit due to Covid and the never-ending supply chain challenges which followed. However, sales of new cars are now growing and will slowly return to the levels seen pre-covid. The RoRo sector is working over-time to keep up with shipping requests from the various car makers around the world, waiting time is long and transport cost is high for vehicles shipped by RoRo, and the light at the end of the tunnel is still very far away. The container sector saw what will probably be remembered as its glory days, in terms of revenue and profit during the peak Covid years, and as a result of that is now left with over-capacity and low transport rates. The coming years will also likely see big changes to the automotive industry as new actors are entering the global stage and traditional trade patterns are changing.

Follow us in the coming weeks as we continue to explore the capacity and pricing dynamics in the container and RoRo markets, look at hot trends in the two sectors, and try to make a comparison of the current and future prospect of shipping cars both in containers and by RoRo.