Container shipping recovery shows signs of faltering

2/13/2018

The recovery in container shipping in 2017 may have been more subdued than at first thought. Increased competition for market share saw rates erode during the second half of the year as trade levels tailed off.

A new report from analysts at Drewry says demand growth on the Asia-Europe headhaul fell by 1.6% during October and November and was up only 0.1% on the previous year.

“The slowdown in the first two months of the fourth quarter is a stark contrast to the 5% year-on-year gains witnessed in each of the three preceding quarters,” Drewry said. “After 11 months, Asia to northern Europe container shipments were up by 4.2% year on year at approximately 9.1m teu, while the rolling 12-month average was tracking even lower at 3.4%.”

Despite the decline during the fourth quarter, growth in 2017 would still be be the strongest since 2014, following on from a 1% uplift in 2016 and a 4% slump in 2015.

An improving Russian market, buoyant demand in Poland and decent growth in the French, Benelux and Scandinavian sectors should ensure that the westbound trade expands beyond the annual threshold of 10m teu in 2018, Drewry noted.

However, with uncertainties surrounding the UK economy and the German market, Drewry is now forecasting a slightly slower growth trend in the region of 3%, down from its early 4.9% estimate.

The slowdown in trade growth, combined with carriers failing to remove sufficient capacity, led to a predictable fall in load factors and rates during the period. Drewry calculates that westbound load factors slipped by about 10 percentage points in October to around 80%, where it remained in November.

As a result, Asia-Europe rates fell to year-low levels in mid-October. Although they have since recovered to mid-2017 levels, rates are likely to slide again during the Chinese New Year, when factories close for the holidays.

“Market share aggression among carriers saw spot rates collapse in the final months of 2017, damaging annual contract prospects in the process,” Drewry said. “The current spot rate surge will peter out post-Chinese New Year, and the extent of the decline will be decided by carriers’ ability to manage capacity in what will still be a growing trade.”

But while carriers may have struggled to raise rates, analysts at Clarkson’s are more optimistic about the charter market for boxship owners.

“While containership charter rates at end 2017 still remained subdued in broader historical terms, there was a clear improvement compared to end 2016, and the rate index finished the year up 35% year on year,” Clarkson’s said. “On the S&P market, secondhand boxship sales activity reached record levels in 2017, the first year in which over 1m teu of capacity was reported sold, against a backdrop of improving secondhand prices.”

Moreover, asset values also began to rise, with the secondhand boxship price index finishing the year up 54%.

But Clarkson’s too noted the inability of lines to maintain rates, despite improvements from the troughs seen in 2016.

“Although rates eased in the latter part of 2017 on some trades, pushing the year-on-year indicator downwards, full-year rate averages generally stood materially above 2016 average levels,” Clarkson’s said. “So, while not yet reflective of a return to peak market levels, the year-on-year approach to boxship market metrics shows that the extent of improvement in 2017 was certainly significant.”