Container Shipping Market – An Outlook for 2018

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Market Outlook for container shipping has shown strong fleet growth forecasts supported by equal demand in 2018. A report by BIMCO, shows that demand has seen an uptick for most liner companies. Container industry players need to be alert as challenges remain ahead, consultants AlixPartners said in their 2018 global container shipping outlook. “The 2018 outlook for global container carriers is decidedly mixed. Although the industry enjoyed modest improvement in 2017, it still needs to address the dual challenges of rising costs and oversupply – driven mostly by fleet expansion – to keep the momentum going,” AlixPartners said.

This has resulted in higher rates in early January 2018, despite the market experiencing falling freight rates from August to December in 2017. In terms of supply, the containership fleet has already expanded by 1.2% in the first month of 2018 — equal to the entire fleet expansion of 2016, with a flurry of new ships delivered in January. BIMCO said the last time such a massive inflow of capacity took place in one month — 254,173 TEU — was July 2010. This includes five ultra-large 20,000-plus TEU ships.  The report said that while 250,000 TEU will leave the fleet as the year progresses, fleet growth is set to reach 3.9% as the new built delivery is forecast to reach 1.05 million TEU.

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In 2018, the focus will be on the deployment of ultra-large containerships. There are 53 ships larger than 13,500 TEU are scheduled for delivery, with new orders being placed at an increasing pace. In terms of future outlook, an upward trend, despite slow demand growth towards the end of 2017, has resulted in two peaks in time charter rates for April/May and around mid-September 2017.

BIMCO projected that overall demand growth is expected to be lower than in 2017, but still high enough to improve the fundamental market balance, with demand expected to grow by 4%-4.5% against a fleet growth of 3.9% in 2018. As was recorded in BIMCO’s Macroeconomic Outlook report, the International Monetary Fund’s (IMF) January 2018 update of its World Economic Outlook significantly lifted its expected GDP growth in advanced economies for 2018 and 2019.

Growth in advanced economies is generally good for container shipping demand, and in particular the report points to North America as an area set for inbound container increases in 2018. While it took the industry a while to embrace the expanded Panama Canal locks, trade coming through South America will show the full impact of their use in future reports. According to BIMCO, this will mean that 2018 is likely to be the year where many container line networks calling the US East Coast will become fully up-scaled by deploying ultra-large container ships.

Shipping itself is balanced precariously on numbers that are being driven by a slow uptick in rates, though many shippers are fighting back to get cheaper services. An increase in bunker costs since last year has many shippers working with carriers to offset these hikes, leaving the carriers without a sufficient income stream to offset the rising prices for fuel.

According to American Shipper,  “Larger customers have been rejecting surcharges such as the low-sulfur-fuel surcharge and frequently demanding contract rates with bunker adjustment factor included, thereby eliminating carriers’ ability to pass on fuel price fluctuations. Consequently, carriers will have to step up other efforts to manage expenses and lower the cost base.”

Amidst the warnings, AlixPartners also saw opportunities for the carriers. “At the same time, we see a number of opportunities for carriers to significantly improve performance through effective management in areas actually within their control,” it said.

The first of these is pricing discipline. The consultancy noted that one of the benefits of the ongoing fleet consolidation is a market situation where the five top carriers now control almost two-thirds of global capacity. “That realignment of ownership creates a unique opportunity for the industry to demonstrate a level of price discipline that has been lacking for years,” it reiterated.

(Image Courtesy: Wall Street Journal)

Fleet consolidation also provides an opportunity to improve operating expense management. AlixPartners noted that although capacity management skills have improved, carriers have yet to produce the anticipated cost savings from fleet consolidation. “Therefore, major opportunities remain for fleet operators to make dramatic cuts in redundant expenses and to modernize operations,” it noted.

Shippers will have to be knowledgeable about their regional trades so they can know how each market is doing; rate volatility won’t happen on a global level but, rather, on a trade-by-trade basis,” it suggested, adding that with the expected rate volatility in 2018, carriers might consider allocating a portion of their business to the spot market rather than going all-in on long-term contracts. The best way to survive any tumultuous years is by “increasing efficiency” and “expanding smartly.”

(References: BIMCO, AlixPartners, Port Technology, Seatrade-Maritime)

Sea News, July 6