- Container Shipping industry is vulnerable to changes in consumer spending, especially during lockdown across the world.
- The first half of this year with last, accumulated volumes are down by 6.8%, to 78m TEU, a loss of 5.8m TEU.
- Rates into the US West Coast (USWC) have risen 117.7% and rates into the US East Coast are up 47.9%.
- Secondary trades have also had falling volumes, with intra-Europe down 2.6% and Europe to North America falling 7.0%. North America to Far East is down 3.9%.
Capacity key to carriers profitability as volume falters, writes Peter Sand for BIMCO.
Demand drivers and freight rates
April and May have so far proven to be the worst months for container shipping volumes, in line with when the strictest lockdowns were in place.
Volumes have recovered in June and July, but they remain considerably below last year’s level.
Compared with last year, the volumes for April and May were down 1.9m TEU (-13.6%) and 1.7m TEU (-11.0%) respectively.
The lost volumes in June were less than half this, down 0.7m TEU (-5.1%).
All major trade lanes down
Volumes are down on all the major trade lanes: intra-Asia down 4.2%, Far East to Europe down 12.3% (-1m TEU), and Far East to North America down 9.0% (-0.8m TEU).
All these trade lanes follow the global pattern in which volumes have recovered slightly in June, with intra-Asian volumes up compared with June last year, while the east-west trades remain below last year’s level.
Cause for carriers blanking
The uptick in container volumes being shipped has led to a more-than-proportional increase in container freight rates.
Originally, the collapse in volumes led to carriers blanking a large part of scheduled sailings, sending the idle container shipping fleet to record highs (2.72m TEU on 25 May), but also elevating freight rates.
The recovery in volumes has resulted in most sailings being reinstated. Between mid-August and late-October, only 3% of capacity on east-west trades had been blanked (source: Sea-Intelligence, as of late August).
Despite capacity now being close to, or above, last year’s levels – and although demand remains low – container freight rates have shown remarkable resilience. As per usual, the long-term contract rates, on which most containers are shipped, have remained far more stable than their counterparts on the spot market, though they have still seen an increase.
The China Containerised Freight Index (CCFI), covering both long- and short-term contracts, rose to 905.23 on 28 August – its highest since late February.
The Shanghai Container Freight Index (SCFI), which only takes spot rates into account, has shown a much more spectacular increase, rising to 1,263.26 on 28 August, its highest level since September 2012.
Increase in spot rates
In particular, there have been strong increases in spot rates from the Far East into the US. Compared with this time last year, rates into the US West Coast (USWC) have risen 117.7% and rates into the US East Coast are up 47.9%.
On 31 August, shipping a 40ft container into the USWC cost USD 2,880 and into the US East Coast USD 3,652. Contract rates are just over USD 1,370 per FEU lower into the USWC and USD 1,190 lower into the USEC (source: Xeneta).
As carriers have stopped blanking sailings and reinstated capacity, the idle container shipping fleet has fallen and the activity in the charter sector has picked up – and, with the number of available ships falling, charter rates have risen.
The daily hire for an 8,500 TEU ship has risen to USD 25,500 per day, having bottomed out at USD 12,000 per day at the height of the crisis. Before the pandemic, the rate was stable at USD 30,000 per day.
The mid-sized ships (2,500-4,250 TEU) are the only ones experiencing higher freight rates now than at the start of the year. In particular 3,500 TEU ships have performed well recently. Charter rates for these stand at USD 12,250 per day, their highest level since July 2018.
Fleet news
The container shipping fleet has grown by 1.6% since the start of the year, reaching a total capacity of 23.2m TEU. BIMCO expects that, over the whole year, the fleet will expand by 2.1%, which will mark a four-year low.
169,647 TEU demolished this year
BIMCO expects a total of 300,000 TEU to be demolished this year, so far this year 169,647 TEU have been demolished.
The reopening of demolition yards on the Indian subcontinent, and the poor conditions in the container shipping charter market, saw owners pushed to getting rid of some of their older and substandard ships between June and August.
The youngest container ship to have been demolished this year was 15 years old.
These newly demolished ships include some of the largest container ships ever to be demolished. At 9,600 TEU, the Sine Maersk (built 1998) is the largest container ship ever to be demolished.
Though these used to be among the largest container ships sailing, they are now far outclassed by the latest deliveries, and given the cascading that has resulted in ever larger ships on smaller trades, it has proven unattractive to keep these ships trading, even on the smaller trades. So far this year, four ships above 6,000 TEU have been demolished.
Pandemic effect
The pandemic has also greatly dampened the appetite for new ships; in the first eight months of this year, contracting activity has been 33.5% lower than last year, as only 162,834 TEU has been ordered. This, combined with a normal pace of deliveries, has sent the container shipping orderbook to its lowest level since September 2003.
The share of the orderbook made up by Ultra Large Container Ships (ULCS 15,000+ TEU) has fallen below 50% (at 47.4%), as five new ULCS (all 23,000 TEU) have been ordered, while 13 have been delivered totalling 301,724 TEU. There is 927,296 TEU of ULCS on order as per early September.
Outlook
Total retail sales in the US, excluding food and beverages, are down 1.3% in the first six months of the year.
Higher unemployment and lower consumer income are looming, as governments start easing back on their stimulus measures.
compared with the first half of 2019, volumes are still down by 890,900 TEU. Furthermore, with the new export orders index for manufacturers still contracting month on month in China in August (49.1), exports out of the region will remain muted.
The resilience in intra-Asian volumes highlights the fact that the region is becoming less dependent on exports.
Exports on to the main trade lanes are experiencing double-digit declines, compared to a less than 5% drop in accumulated volumes on the intra-Asian trade in the first half of 2020.
This is the result of many years with high economic activity in the region increasing the size of the middle class and, therefore, the population’s wealth and spending.
Capacity management has been the key for success
Across the board, major carriers have announced strong results for the first half of the year, despite volumes falling.
BIMCO expects freight rates to fall in the near future unless capacity adjustments are constantly made to rebalance the market.
Carriers have been, and continue to be, in a better place to face this crisis than tonnage providers, as carriers could blank sailings and, in many cases, get unwanted tonnage off their hands.
Tonnage providers, on the other hand, were left with these unwanted ships, having to cover their cost and, at the height of the crisis, unable to charter them out, even at low rates.
Carriers also achieved large cost savings through the lower bunker price, which has resulted in their voyage costs falling.
The price of both high-sulphur fuel oil and low-sulphur fuel oil has fallen, though – as the latter has fallen more than the former – the price spread between the two fuel types has also narrowed.
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Source: BIMCO
