Overall Asian exports look weak for the moment, as consumers hold back across the board. Strength is shown instead in the Australasia and Oceania region, which holds up well in the turmoil.
The demand situation for containerised goods in Europe is still critically low, and this is felt mostly on the Far East to Europe trading lane. In the search for a new market balance, operators took a deep cut into deployed capacity in October. By doing so, they attained the vital market balance – but only for a while, evidenced by rising freight rates that have dropped rapidly even since.
On the US West Coast, the number of inbound containers bounced back to year-high figures in September and October after having been unusually low in July and August. This has led to an accumulated year-over-year increase in the number of containers of 1.9%, up from 1.4% last month. The consistent growth since March has paved the way for relatively healthy trans-Pacific box rates throughout the year. Meanwhile, the number of inbound containers is on par with the high records last year, revealing fewer imbalances on the USWC.
The overall poor state of the demand side has prompted owners and carriers to idling and recycling tonnage on a large scale. The supply side of the market balance has been improved by the 272 000 TEU being demolished so far this year.
Earlier this year, BIMCO analysed the demolition potential of each shipping segment in different scenarios. Comparing to our analysis, we can conclude that container ship and crude oil tanker segments have been demolishing tonnage beyond the high stress scenario, whereas dry bulk vessels and oil product tanker are found in the mild stress scenario.
The container ship fleet has grown by 5.9% until now and remains on course for a full year fleet expansion of 7.2%.
Container ship demolition has stayed very strong throughout the year, up from the very low level at 77 000 TEU in 2011 to touch 300 000 TEU this year. It is equally important that the demolition of larger sizes has started, with 27% of the recycled tonnage having a capacity exceeding 3000 TEU.
The elevated recycling activity, as compared to the steady pace of new deliveries, has meant that the number of vessels in the fleet has actually gone down during the past two months. Meanwhile, 15 new contracts for +9000 TEU vessels and seven for medium sized vessels were done. This made the orderbook stand still at 3.5 million TEU (22% of active fleet).
In early 2012, the newest fully cellular container ship to be demolished was built in 1992, but since then a lot of newer vessels have been scrapped. If you count today, 37 vessels of 72902 TEU in total, all built in the years from 1993 - 2000, have fallen victim to the cascading pressure, iron-hard market conditions, and sub-optimal trading specifications.
Looking forward, the next round of announced freight rate adjustments on the Far East to Europe trading lane are due by mid-December. Will rates go up and will they stick around? The demand erosion suggests that deployed capacity must firmly and continuously be adjusted to achieve some kind of market balance that forms the foundation for rates to go higher rather than lower. If judged by the circumstances that surrounded the 1 November changes in freight rates, this round of adjustments may prove to be a carbon copy.
If the bad development in unemployment across Europe is not reversed, consumer confidence will not improve and imports may slide further before things get better. With the anticipated stronger GDP growth filtering down through the European economies catching a stronger tail-wind during the second half of 2013 only, the near-term outlook does not look too positive – despite the light at the end of tunnel. However, we are likely to see positive growth in EU and the US trades during 2013 that will accelerate coming into 2014. If tonnage is being idled or recycled to bring balance to the market, one may see a much faster recovery and more sustainable box rates.
At the end of November, 274 ships of 768 000 TEU were recorded as idle by Alphaliner. At the same time last year, the number of idle ships was 180. But it was about this time last year that operators began to extend the idling that topped at 300 vessels and paved the way for the rate turnaround that we saw in the last week of 2011 and the first two months of 2012. So each carrier knows what to do.
As regards the overall supply of new tonnage in 2013, it continues to grow faster than world trade and as such, it holds the industry on the griddle.
Written by Peter Sand, BIMCO.
This is the first of a four-part summary of the BIMCO Shipping Market Overview & Outlook 2012-13. The full report can be accessed here.
Read the article online at: https://www.worldcement.com/special-reports/21122012/container_shipping_bimco_december_forecast_804/