Container shipping update

Demand
Without doubt the slow economic growth globally and the moderate recovery in Europe results in slow growth in world trade - including container trade. Q1 was especially poor in terms of global container throughput, which, according to Drewry, went up by just 0.5%. Q1 saw no growth year on year in throughput in Chinese ports, whereas they grew by 3.2% in Q2-2016 compared to the same period in 2015. Overall container demand grew around 2% in Q2-2016 compared to Q2-2015. Global container demand is struggling to achieve a GDP-to-trade multiplier of one.

Reflecting on our last report, where BIMCO stated that demand is not really going anywhere, we now see a development, minor and slow, but above all positive.

In the key trade lanes into Europe, primarily from East Asia, demand grew by 1.4% in the first five months of 2016 compared to the same month in the previous year.

Supply
The container shipping fleet has now passed 20 million TEU, at a point in time where no celebrations will follow. Total fleet growth year-to-date in 2016 stands at 1.5% by 9 August. 85 units with a combined capacity of 598 000 TEU were delivered, while 92 units representing 303 000 TEU left the fleet to be demolished.

This high pace in demolition activity prompted BIMCO to upwardly adjust (by 30 June) our estimate for a full year demolition of capacity in 2016, now set at 400 000 TEU. The fleet is developing as expected as the delivery of new ships also is slightly higher than earlier estimates. In total, this points towards a full year expansion of 3.3% for the nominal fleet (including idle ships).

The tough market conditions mean that nominal fleet growth does differ somewhat from active fleet growth. According to Alphaliner, the idle fleet totalled at 1 019 937 TEU by 8 August. 91% of the idled capacity is of ships below 7500 TEU, controlled by non-operating owners.

Outlook
IMF notes that “high frequency” indicators point to lower economic growth in the second half of 2016 for the euro area. This could cool the East Asia to Europe trade even before it was back on track.

As we are now well into the peak season of the year (Q3), demand growth may support utilisation levels of the ships, but severe overcapacity in the market and recently agreed contract rates on the transpacific trade lanes mean the pressure remains on the container shipping industry.

Over the coming year, carriers will feel the drag of the new, and much lower level of annual transpacific (price and volume) contract freight rates that were agreed on 1 May 2016.

Adapted from press release by Joseph Green

Read the article online at: https://www.worldcement.com/the-americas/06092016/container-shipping-update-199/