Container shipping did better in 2017 compared to 2016, but with little enhancement made to the fundamental market balance in 2017, profitability in 2018 will still depend on sustained demand and fleet capacity check, according to a new analysis from the Baltic and International Maritime Council (Bimco).
Peter Sand, chief shipping analyst at Bimco, said last year was an improvement over 2016 in terms of higher freight rates and reduced volatility as the economic recovery continued. However, 2017 also saw demolitions go down, and the idle fleet was generally reactivated.
“For the container shipping sector, the improvement in 2017 will carry on into 2018, where fleet growth rate seems to match demand growth, and as a result no big freight rate changes are expected to lift earnings,” said Sand.
The 2017 demand growth rate is heading for +5%, which is the highest in six years, said the organization. After a terrible 2015, port throughput has gone up and up, growing as much as 7.7% quarter-on-quarter in the third quarter of 2017. As demand rebounded, combined with a multi-year low fleet growth rate in 2016, the fundamental market balance improved.
But 2017 has not seen such an improvement. The fundamental balance seems almost unchanged, as reactivation of idled ships lifted actual fleet growth beyond the nominal TEU growth rate of 3.3%, said Bimco.
Moreover, in September, the ordering drought came to an end. Twenty new orders for 22,000-TEU ships broke a 21-month lull in newbuild activity. They will be delivered in 2019-2020.
This, said the report, means that the nominal fleet growth level for the container shipping industry over the next few years is set for around 4%, “which leaves little room for fundamental market balance improvements.”
As a result, increased earnings must come from continued cost-cutting exercises and permanent slow-steaming to keep fuel costs on a tight leash. On top of that, operational efficiency gains and positive demand growth gain more boxes on the individual ships. The latter means harvesting some of the economies of scale the industry relies heavily upon—with the large volumes coming from front-haul trades.
“Profitability is up for grabs across the container shipping industry, if demand growth remains in the region of 4-5% and actual fleet growth is handled with care,” Bimco forecasts.
It also expects the container shipping segment to see a net fleet growth of around 4.1% in 2018 compared to the 3.3% growth estimated for 2017.
The shipping industry has adapted quite well to a lower level of demand growth over the past couple of years, said Bimco. “The next challenge is to understand that this is as good as it gets, and to avoid wishful thinking that demand levels will increase significantly—as that will not happen.”
It added: “The biggest risks to the forecast remain on the downside, meaning that fleet could grow too much or demand too little.”
“2017 was a year of change. Much of it for the better, but a cautious approach is still needed for 2018 to maintain the progress already achieved,” said Sand.
Photo: Alstersegler
