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BIMCO December Market Outlook: Container Shipping 28 Nov 2019

Container Shipping

Pressure remains despite some of the trade war damage being offset by a reshuffling of manufacturing in Asia

With fleet growth of 3.7%, compared to global container shipping demand growth of only 1%, even blanked sailings have been unable to lift freight rates.

Demand drivers and freight rates

Container shipping has in the last few months felt the effects of the trade war digging in, as global container volumes continue to see very sluggish growth, now standing at 1% in the first nine months of the year. 

This brings the total volume of containers shipped this year to 126.3 million TEU, up just 1.3 million from the corresponding level in 2018. All this compares with the 3.8% growth at this time last year, or an additional 4.6 million TEUs.

Fleet news

Fleet growth in container shipping has also slowed in recent years, although not as fast as the slowdown in global container shipping demand, meaning that the fundamental balance of the market has continued to worsen, to the detriment of freight rates and shipowners operating in this sector.

Growth in the container shipping segment now stands at 3.6%, and BIMCO expects full-year growth of 3.7%.

At the end of 2018, BIMCO forecast 100,000 TEU would be demolished in 2019, although it said that figure could double if, as has been the case, slowing demand and low freight rates materialised. Demolitions this year currently stand at 163,219 TEU.

Taking into account deliveries of 964,064 TEU, it brings the total containership fleet to 22.9 million TEU. Of the vessels delivered this year, 27 have a capacity above 14,500 TEU and, added together, these Ultra Large Container Ships (ULCSs) accounted for 544,202 TEU of the total delivered, or just over 56%.

There are only a few trades able to handle ULCSs and, as they arrive on the market, cascading will lead to large ships finding their way to many of the world’s other trades, the majority of which have no need for larger ships or extra capacity, putting further pressure on freight rates.

OUTLOOK

Carriers have announced further blanking of sailings (pulling a ship out of rotation) in November which, along with ships heading to yards for scrubber retrofitting amongst other things, has pushed the idle fleet up in all ship sizes in recent weeks. 

However, despite the continued blanking of sailings, freight rates have not risen substantially as the fundamental balance has continued to deteriorate. This will only hurt carriers, especially as they face the final preparations before the implementation of the 2020 sulphur cap and the battle to pass on higher fuel costs to customers.

Although volumes being shipped between the Far East and Europe have remained high – up 4.6% from the same period of 2018 – this has done little to lift freight rates. The CCFI index to Europe in October was 10.5% lower in 2019 than in 2018 and, over the same period, the SCFI was down 17.1%. The continued deployment of bigger ships, as well as the overall market conditions, mean that even high demand growth on a route cannot single-handedly lift rates on that route.

While bunker adjustment factors (BAFs) have long been around, carriers have developed new formulae to calculate them, and their ability to pass on these extra costs will depend on the conditions of the market. 

Shippers want the lowest possible price and, as long as the market fundamentals are on their side, they will be unwilling to pay extra, even if these costs are disguised as BAFs. Around 50% of the ULCS fleet is now expected to have a scrubber installed by the end of 2020, up from 34% by the end of 2019 (source: Clarksons), with carriers preferring the upfront costs rather than prolonged higher costs of fuel.

Carriers, competing in a commoditised market, will probably be willing to undercut each other if it means they can sail with more containers onboard. Because of this, cost-cutting will continue to be a focus as fuel costs rise.

The slowdown in demand is showing no signs of easing, and should the latest round of tariffs be implemented on 15 December as planned, virtually all US imports from China will be subject to tariffs, all of which will only cause further harm to the shipping industry at the same time as costs are increasing due to the IMO 2020 sulphur cap.A continued reshuffling in manufacturing in Asia may offer some upside, once processes are up and running. But, as BIMCO has previously said, there are no winners in a trade war, and this is already being felt across the board by shipping in 2019.

The new year will bring not only the sulphur cap, but also skewed exports caused by the Chinese New Year. Pushing out goods ahead of widespread factory closures may bring a boost in January before a slow, and possibly painful, February awaits carriers.

Earlier this week BIMCO released the December Market Outlook for: Macroeconomics, dry bulk shipping and oil tanker shipping. Find them all in the first link below.

Much more here: https://www.bimco.org/news-and-trends/market-analysis

Looking for Training: https://www.bimco.org/training/courses/2019/1128_market-insights-seminar_bimco-house

IMO2020 Bunker price news: https://www.bimco.org/news/market_analysis/2019/20191107_imo2020_market_uncertainty

https://www.bimco.org/news/market_analysis/2019/20191107_fuel_spread_32_ports

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