The container shipping industry is benefitting from a better balance of demand for container shipping and vessel supply, but the performance of the new ocean carrier alliance groupings that took effect at the beginning of April will be key in 2017, the Baltic and International Maritime Council (BIMCO) said in its latest forecast.
“Gains from a low-fleet supply are instantly reaped, whereas the benefits from new network structures take a bit more time,” BIMCO Chief Shipping Analyst Peter Sand said.
He also cautioned that the majority of container shipping, as measured in TEU miles, takes place on routes outside of the East-West trade lanes dominated by the three alliances.
The most recent available data illustrated how demand for container shipping, as measured by TEU miles, grew by 2.7 percent in 2016, lower than the average of 3.4 percent annual growth seen between 2012-2016, Sand said.
Still, that demand growth outpaced the 1.3 percent capacity added to the global containership fleet in 2016, primarily fueled by the decisive actions by shipowners who sold excess tonnage for demolition, Sand said. “This meant that the fundamental market balance improved for the first time since 2011,” he said.
Charter rates for many small and medium containerships have improved sharply since mid-February, but Sand noted how “the reasons behind the better charter rates seems to be less clear.”
While demand for container transport appears to have started well on most trade lanes, he said, “Chinese New Year notoriously affects the individual data for the first two to three months.”
For example, BIMCO said its indicators showed inbound loaded containers were down 2.2 percent in the first two months of the year to the U.S. West Coast, but were up 9.4 percent to the U.S. East Coast.
But two months do not make a year.
The April edition of the Pacific Merchant Shipping Association’s West Coast Trade Report noted how March was very busy for California’s three major ports, which include the ports of Log Angeles, Long Beach and Oakland. The three ports saw their combined inbound loaded TEU counts soar 25.2 percent over last March, while the number of outbound loaded TEUs rose by 7.6 percent.
Likewise, Sand said Container Trade Statistics (CTS) reported a 5.2 percent growth in volumes on the Far East to Europe trade in January and a 9.2 percent drop in February.
The supply-demand balance has been helped by increased scrapping, especially of Panamax ships.
BIMCO said that in the past four years, more than 800,000 TEUs of Panamax ship capacity has been removed, about half of all demolished container shipping capacity during that time.
Alphaliner also noted in its April 12-18 newsletter that according to figures it has complied, the new carrier alliance groupings “boosted demand for vessels, and the final tally of containership tonnage to be deployed on the revamped Asia-Europe, transpacific and transatlantic routes is to increase by 5 percent (by TEU capacity) and 4 percent (by vessel count) compared to March.”
Not many ships were ordered in 2016 or year to date this year, but BIMCO said 3 million TEUs of capacity is on order, with 86 percent of that capacity scheduled for delivery in 2017 and 2018.
BIMCO is projecting the containership fleet to grow by 2.9 percent in 2017, assuming that 450,000 TEUs will be demolished and 1 million TEUs will be delivered.
“For that to happen, the current demolition interest must cool somewhat and the delivery pace must pick up,” BIMCO said. “Nonetheless, both assumptions are likely to happen in a market that is improving.”
BIMCO pointed out how that is already happening, as 152,800 TEUs have already been delivered in 2007, while 195,555 TEUs have been sold for demolition.
Fewer containerships are idle, Sand said. He cited figures from Alphaliner, which illustrated how 970,000 TEUs were idle as of April 3, compared to 1.6 million TEUs at the beginning of the year.
“The year has started on solid ground in terms of both the development of the demand side and the ongoing work on keeping the lid on fleet growth,” Sand said.
“BIMCO expects the container shipping industry to continuously optimize networks and make them more efficient,” he said. “Cutting costs where it’s still possible and making the most of the fleet available remains essential to reaping the benefit of the individual alliance members. As cost cutting is a huge part of this, the effect on freight rates is not the only indicator of a successful implementation.”
BIMCO said that overall, the three alliances control 77 percent of global ship capacity and as much as 96 percent of all east-west trades.
Members of the 2M Alliance include Maersk Line and MSC; members of “THE” Alliance include Hapag-Lloyd, Yang Ming, NYK, MOL and “K” Line; and members of the OCEAN Alliance include CMA CGM, APL, COSCO, Evergreen Line and OOCL.
Looking ahead, Sand said, “Before getting carried away, we should remember that 57 percent of all demand, as measured by TEU miles, is generated by non-east-west trades – trades that are particularly impacted by the recent years’ cascading of tonnage from the east-west trades. Another two-tier market is in the making.”
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