The global container shipping industry will see demand outstrip supply in 2018 for the first time in years, but with container liners’ unpredictable supply discipline, the segment is forecast to see flat to slightly negative growth in freight rates, according to a new report by S&P Global Ratings.
“The lighter new vessel delivery schedule for 2018, compared with 2017, combined with our expectation of sustained imports of commodities, and longer distances travelled, point to rising charter rates across the shipping industry this year—with the exception of the container liner segment, which we forecast will see flat rates or a slight dip,” said the report.
Although the overall supply and demand conditions have shifted in favor of ocean carriers, with trade volume growth likely outpacing fleet growth in 2018, S&P Global Ratings remains cautious on the freight rates’ outlook.
Average freight rates on major trade lanes recovered to more sustainable levels for container liners last year, thanks to decent trade volumes, supply-side measures like vessel scrapping and lay-up, and streamlining of networks after yet another wave of industry consolidation.
However, significant deliveries of ultra-large container ships are scheduled in 2018 and beyond. These were ordered a few years ago by ship owners looking for economies of scale to be reaped from utilizing such ships.
“They will pose a threat to the recent rebound in freight rates, in particular on the main Asia-Europe lane (a home for mega-containerships), despite the likely favorable supply-and-demand industry balance in general,” said the investment research and ratings agency.
It said the current order book for post-panamax container ships—which have a capacity of more than 15,000 twenty-foot equivalent units—may almost double the size of the global post-panamax fleet within the next two to three years.
Considering the persistent supply burden, freight rates will ultimately depend upon how prudent the leading container liners are in their capacity management decisions, it said.
“Taking into account historically poor supply discipline, we see a risk that new orders will accelerate. We are alerted to the most recent orders of 20 mega box ships by industry leaders MSC and CMA-CGM. And, given the container liners’ traditional battle for market shares, new orders from other players may follow.”
In addition, it said, scrapping has slowed in recent quarters.
“Given all these uncertainties, we forecast flat to slightly negative growth in freight rates in 2018, coming from the much-improved average rates in 2017,” the report said.
Photo: Philippe Alès
