Container Shipping 2016 Outlook | Freight Rates Beating “Unbeatable” Record Lows
According to a recent research by Drewry Maritime Advisors, last year witnessed a record intake of new ships in the container shipping industry. World Maritime News mentions “there were 209 new ships that hit the water in 2015, adding some 1.7 million TEU to the fleet before any deductions for scrapping”. Most of this new supply was made available through 10K TEU ships, mostly meant to ship on East-West trades, mainly Asia-Europe.
Considering the growing supply/demand imbalance that worsened during last year, 2016 will certainly not be easier for carriers, that will need even more skillfulness to absorb the “expected intake of newbuilds that will not be as high as 2015, but will still be another 1.3 million TEU, and mostly in the form of larger ships”.
To worsen things for carriers concerning ship’s capacity, the average ship capacity increase seems countercyclical. According Drewry, “the economic argument for ordering ever bigger ships is diminishing as they grow and may actually reverse upon reaching 24,000 TEU, as ports struggle to turn them around efficiently and the total system cost rise”. In fact, carrier’s financial status seems to deteriorate as they run out of trades/services to profitably deploy such big ships.
In this scenario, while each individual carrier seems to look at their own economies of scale, they ignore the devastating effect on the market of all major carriers doing the exactly same (at the same time). Hence, freight rates may just keep beating “unbeatable” record lows, as carriers struggle to keep container ship loading factors.
Looking at the most recent market data, however, The Loadstar’s Mike Wackett comments that “the mounting prospect of carriers being pushed toward bankruptcy, which has dominated headlines in the past few weeks, seems to have aided the rate recovery to a certain extent”, having the last 2 weeks observed slight increases according to SCFI data for Asia-Europe trades, with a partial application of GRIs.
Despite this recent development, considering the quick price erosion happening in the markets (spot and contract), FIS’s Richard Ward holds the opinion that “shippers still hold all the cards, to the detriment of carriers.”
Sources: World Maritime News, The Loadstar, Freight Investors Services, Drewry
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Jose Carlos Nunes has 10 years experience in International Logistics, having worked mostly with transport & freight management, and logistics negotiation and contracting; but also with areas such as international logistics operations support systems and planning tools; international trade data, processes & analytics