New containership orders ‘will keep a lid on freight rates’

1/11/2018

New containership orders will make it difficult for lines to address the fundamental imbalance between slot supply and demand in the next two to three years, according to shipping organisation Bimco, limiting freight rate rises and forcing lines to seek out cost savings

As reported in Lloyd’s Loading List last week, newbuild deliveries in 2017 represented a 26.6% jump on the previous year, when approximately 944,000 teu hit the water, according to Alphaliner. And host of carriers also returned to the yards in 2017 as the orderbook surged nearly 140%, year on year. Most striking was the 20 ships ordered in the 18,000 teu and above size range compared with none in 2016, as carriers, including MSC and CMA CGM, agreed contracts for 22,000 teu units.

Bimco said last year’s deliveries and the ordering spree in the latter part of 2017 would keep a lid on freight rates for shippers in the coming years and force lines to seek out cost savings.

“In September, the ordering drought came to an end,” said Bimco in its annual review of the year. “Twenty new orders for 22,000 TEU ships broke a 21-month lull in newbuild activity. They will be delivered in 2019-2020.

“This means that the nominal fleet growth level for the container shipping industry over the next few years is set for around 4%, which leaves little room for fundamental market balance improvements. As a result, increased earnings must come from continued cost-cutting exercises and permanent slow-steaming to keep fuel costs on a tight leash.”

Peter Sand, chief shipping analyst at Bimco, told Lloyd’s Loading List that with the container shipping segment forecast to see net fleet growth of around 4.1% in 2018, lines would only be able to make operational efficiency gains via economies of scale on front-haul services from Asia to Europe and North America, where operators generate most of their volumes and revenues.

“More boxes on the front haul trade is the key to improvement,” he added. “More on the back haul merely reduces the repositioning costs.”

Freight marketplace provider Freightos also said excess capacity would likely dampen spot rate gains this year, despite New Year GRIs finding some traction. It forecast that ocean freight prices would continue to climb slightly until the Chinese New Year, but shippers should then expect them to drop back after 16 February.

"The effective GRI on FCL in January has been about $300 for China-US West Coast, and $500 for China-East Coast, but we believe the lift from this and two more GRIs coming up won’t last,” said Zvi Schreiber, CEO of Freightos. “It seems oversupply will keep ocean freight prices low for the foreseeable future, as evidenced by a lacklustre peak season.”