- COVID-19 causes the biggest TEU slump in a decade.
- Drewry’s forecast saw a 7.3% downturn in terms of TEU for H1 with throughput crashing to 16% at the peak of the COVID-19 outbreak in Q2 2020.
- World handling compound annual growth rate (CAGR) is just 3.5% over the five-year period from 2019 to 2024.
- Drewry predicted operational carrier earnings to stand at £9 billion and not the $4 billion originally predicted in March 2020.
According to Drewry’s quarterly container market report, the world of ports and shipping has seen the worst TEU throughput slump since the 2000s financial crash, says an article published in Port Technology.
Downturn in TEU
Released at the end of June 2020, Drewry’s container forecast saw a 7.3% downturn in terms of TEU for the first half of the year with throughput crashing to an almighty 16% at the peak of the COVID-19 outbreak in the second quarter 2020.
Simon Heaney, Senior Manager, Container Research at Drewry during a webinar on 14 July said:
We do not think the situation will improve as we progress through the second half of the year.
Regional variations
There are some regional variations on the drop in TEU with the likes of the Middle East and Oceania not hit quite as hard. This could be because of their recovery from a weaker 2019.
Heaney said, “We expect to see gradual normalisation and more stable freight rates. That does not mean the industry will be without challenges, still structural overcapacity and debt to deal with.”
It is low CAGR
Heaney, for the consultancy’s baseline forecast, said it is low with a world handling compound annual growth rate (CAGR) of just 3.5% over the five-year period from 2019 to 2024.
Baseline forecast
This baseline forecast also sees a return to 2019 world handling rates as soon as 2021.
This would also see a gradual supply-demand rebalance through 2024 as well as positive carrier earnings for 2020 to 2021.
Drewry’s prediction
At the time of the webinar, Drewry predicted that operational carrier earnings will stand at £9 billion, not the $4 billion originally predicted in March 2020.
Reduced capacity
This in part due to the spike in freight rates because of reduced capacity from the carriers to deal with the dip in demand.
Increase in freight rates
Martin Dixon, Head of Research Products at Drewry said, “We think carriers overestimate the decrease in demand from North America leading to the increase in freight rates. We do not think this was malicious.”
COVID-19 outbreak
Predictions have become increasingly hard to make since the outbreak of COVID-19 however Heaney said:
For 2020 we are 100% certain that there will be a contraction but 2021 is still up for grabs and there is still potential for further contraction.
Doomsday scenario
Drewry has also outlined a doomsday scenario which would see a longer outbreak of COVID-19 in 2020 plus a new outbreak in 2020 which could see TEU throughput continue to decline with no recovery to 2019 levels until 2025.
World handling CAGR for 2019 to 2024 would therefore stand at -4.4%.
Capacity suppression
In this scenario there would be a need for more permanent capacity suppression and an increased likelihood of industry consolidation. If this supply contraction occurs there would be a positive trend in carrier earnings, Drewry said.
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Source: Port Technology
