The container shipping market has another tough year ahead of it. »Battening down the hatches« will not be enough for shipowners.
Container lines had all reason to celebrate at the start of the year when spot freights surged by more than[ds_preview] 100% on key trading routes including Far East–Europe and Far East–East Coast South America following their 1 January general rate increases. The party didn’t last long, though, as most of the gains dissipated during the month as witnessed so many time before, reminding carriers and shipowners just how volatile the container market remains. Container lines have relied on the seasonal export rush out of China ahead of the Lunar New Year holiday to fill their ships but the spike doesn’t seem to have been strong enough to sustain firmer cargo rates. Although the steep drop in bunker prices has provided substantial cost relief to them, many carriers depend on a recovery in freight rates to break even.
London shipping consultancy Drewry forecasts 5 bill. $ in collective losses for the liner shipping sector in 2016 but if carriers manage route capacity efficiently and demonstrate pricing discipline they can avoid spilling all this red ink. Yes, their track record on limiting slot supply during times of worldwide tonnage surpluses is poor, but still it’s up to them.
As far as global trade and transport demand is concerned, new signals over the past few weeks have been mixed. The RWI/ISL container handling index posted a second consecutive increase for December, thus reversing its weaker tendency throughout most of 2015. The institutes take this as a sign of returning growth in global container traffic. On the other hand the International Monetary Fund (IMF) just pruned back its forecast for world economic growth by 0.2 for both 2016 and 2017, down to 3.4% and 3.6%. The reasons it cited were slowing growth in China, rising financial markets risks, the fall in commodity prices and asynchronous trends in monetary policy between the US and other advanced economies. US import demand was the only major highlight for liner shipping last year but latest indications are that gdp growth in the US may have stalled in the fourth quarter. Worse yet, analysts are convinced that containerized imports into Europe are going to remain weak during the first half of 2016. Hackett Associates and ISL predict another 4.1% decline in container liftings across Europe’s north range ports. This doesn’t bode well for demand on the headhaul Asia–Europe route which the health of the whole industry very much depends on. What do we make of all these figures and forecasts? Container traffic growth appears to gain some more traction after only 1–2% growth in global liftings last year. That’s generally good news. However, growth may not pick up fast enough on routes where it’s needed most (Asia–Europe westbound) to boost rates and carrier earnings.
Certainly container lines must tread very carefully under these circumstances. They may »drip-feed« additional slot capacity where volumes justify it but this alone might not provide the kind of shot in the arm that the charter market needs for vessel hire rates to pick up. 335 cellular vessels representing 7% (1.35mill. TEU) of global fleet capacity – most of them charter vessels – are currently idle or unemployed, according to Alphaliner. It’s going to take time to absorb all this surplus capacity into services again and don’t forget: another 1.3–1.4 mill. TEU of brand-new tonnage will come on stream on top of that this year. Scheduled delivery volumes will be around 25% less than last year but challenging nonetheless given the imbalances carried over from 2015.
Charter market rates have at least stopped falling after their crash over the last six months, with the ConTex and the Howe Robinson Containership Index showing marginal increases these days. In shipping they say individual players »cannot change the market«. However, if enough individuals take action, the sum of it can have an impact. Demolition of outdated tonnage is a case in point. Owners already began sending more ships to breakers during the closing weeks of 2015 and the momentum must be maintained. Last year saw just over 200,000TEU deleted from the fleet but for 2016 400,000TEU could be a realistic target, brokers say. Net fleet growth could thus fall below 1mill. TEU.
Consolidation of commercial management and chartering is a second field of action that has been talked about a lot. The few examples of increased pooling of charter vessels as for example in Northern Europe have shown encouraging results. Hire rates for 900–1,000 TEU vessels in the region remain higher than for post-panamax vessels in Asia partly because of a greater balance of market forces and reduced competition for employment between charter vessels. These might only be small steps in the bigger global context but they can only help speed up the recovery in the tramp sector.
Michael Hollmann
