Global growth in container volumes went up slightly in the second quarter of the year, but so far remains below normal industry levels as the trade war makes itself felt, according to a new market analysis by the Baltic and International Maritime Council (BIMCO).
“Global growth in container volumes has picked up slightly in the second quarter of the year, with growth in the first seven months reaching 1.2%, compared to the just 0.8% in the first quarter,” the analysis said.
“Despite this rise, the growth figure remains substantially below what the industry has been used to, with growth in the first seven months of 2018 equal to 4.4%.”
This low growth masks large differences in developments on trades around the world, it added. In particular, there is a significant 5% rise in exports from the Far East into Europe. But despite the high growth, spot freight rates on this trade have continued to fall, even with carriers blanking sailings on the route in an attempt to lift freight rates.
Also experiencing high volume growth is the US East Coast (USEC) which year after year continues posting high volume growth. Despite this, spot rates continue to fall and are down 22.7% year-on-year, said BIMCO.
“High growth rates on both the Far East to Europe, as well as imports into the USEC raises the question whether containers are being sent from the Far East to the USEC through Europe,” it said.
In contrast, other major container trades have experienced more sluggish growth. The trade war is certainly making itself felt on the Far East to North America route, where volumes have fallen by 0.4% in the first seven months of the year. Similarly, laden container imports into the US West Coast (USWC) in the first seven months of 2019 are down 1.5%, according to BIMCO’s own data.
Container imports to the USWC show the effects of frontloading, with full-year growth in 2018 at 4.6% during which imports rose towards the end of the year to avoid higher tariffs. The slowdown in 2019 is an inevitable result of the tariffs and stocking up that boosted volumes into the USWC in the second half of 2018.
Another round of frontloading imports is likely as US President Donald Trump announced that around half of the new tariffs on US$300 billion will have their implementation date delayed from September 2019 until December this year. Retailers are therefore likely to stockpile these goods before additional tariffs are implemented, to delay the passing on of additional costs to US consumers.
“The impact on shipping may be more limited in this latest round given that the goods are mostly high value and low volume goods and therefore have less of an impact on container shipping volumes,” said BIMCO.
The fall in volumes so far this year to the USWC has also resulted in falling spot freight rates which are now down 28.9% year-on-year.
Meanwhile, BIMCO said that since the start of the year the container fleet has grown by 2.6%, and forecasts the fleet to grow 3.5% by the end of the year. There are currently 71 ultra-large container ships (ULCSs) on order, amounting to additional capacity of 1.3 million TEUs with all but four contracted to be delivered between now and the end of 2021.
“These ULCSs will be deployed on the Asia-Europe route at a time when freight rates indicate that there is no need for additional capacity,” said BIMCO.
In its outlook, the report said growth rates on intra-Asian container trades are viewed as an indicator of what is to come on long-haul routes, as intra-Asian volumes indicate the health of supply chains in the region and therefore what finished goods are likely to be exported from Asia in the near future.
“With a volume growth rate of 0.8% in the first seven months of 2019, low growth levels can be expected in global demand for container shipping for the remainder of the year,” said BIMCO. “The slowing demand growth means that despite the comparatively low fleet growth expectations which BIMCO has of 3.5%, the fundamental balance of the container shipping market will worsen this year.”
Furthermore, it said, “with the fleet currently projected to grow by 3.2% in 2020 this is unlikely to change much next year, with the industry heading deeper into a hole. Cutting costs will remain in focus to be able to weather the storm.”
BIMCO said that adding to the worsening of the fundamental balance is the added fuel costs that will be coming due to the 2020 sulfur cap. This, it said, “paints a disturbing picture for the rest of the 2019 and 2020 for container shipping, as the oversupply of capacity is likely to make it difficult for shipowners to recover the additional fuel costs.”
Photo: Roy van Wijk
