Maritime market forecaster and business advisory service Maritime Strategies International (MSI) holds a more positive outlook for container shipping demand in 2016 than the prevailing dour sentiments, saying the sector will see “a reversion to fundamentals-driven growth.”
“The latest Container Shipping Forecaster from MSI suggests a more positive market outlook for the container shipping sector in 2016 than the analysis of most of its peers. Though its supply-side predictions are broadly aligned with those of Drewry and Alphaliner, MSI makes a more optimistic forecast on the demand side—indeed its trade growth estimates for 2016 are more than double those of the others,” MSI said.
It added that its positivity rests much on an interpretation of the dynamics of trade volumes on the Asia-Europe route, with MSI “ascribing much of the weakness in 2015 to short-term currency and inventory effects and 2016 seeing a reversion to fundamentals-driven growth.”
“The market gyrations around Lunar New Year mean that the sector will have to wait another month before it becomes clearer which of the analysts’ competing views better fits the live trade data,” it continued.
In the meantime, no one should mistake the container freight or charter markets as happy places, said MSI senior analyst James Frew.
“The inevitable seasonal weakness in Q1 has meant that earnings remain on the floor in both the freight and charter markets. Freight rates across the board are extremely subdued, with the Asia-Europe spot freight markets falling throughout February to reach new record lows in March.
“We anticipate that strong scrapping volumes will increase further in the remainder of the year, but this will be more than offset by an uptick in delivery volumes as cash-strapped yards are unable to push out final delivery much further.”
While spot freight rates on the main routes remain at loss-making levels, with non-main lane trades looking equally weak, in the near term MSI expects that on these trades, liner companies will mount increasingly determined efforts to boost freight rates, particularly in the light of the upcoming contract negotiations.
Helped by improved fundamentals, with stronger trade growth driving increased vessel utilization, liner companies will be less reliant on general rate increases or GRIs to artificially boost freight rates and the stronger lines will look to consolidate their positions through increased market share.
This will in turn present some downwards pressure on box earnings, but not before it has boosted vessel demand and injected some upwards momentum into the charter market.
Said MSI: “The charter market at present remains in the doldrums and for many market participants it is unclear where the uplift will come from in the short term. Nonetheless, MSI is relatively positive regarding the outlook for 2016, with trade growth and scrapping being the key drivers of this optimistic tone.”
Photo: Rama
