Worldwide container trade, marginal growth

Tuesday, 23 February 2016 00:00 -     - {{hitsCtrl.values.hits}}

Untitled-4Worldwide container trade, marginal growth

In 2015, global full TEU volumes increased by 1.0% year-on-year to 140.4 million TEU, according to (provisional) figures from Container Trades Statistics (CTS). While inter-continental trade rose by 1.6% to 99.5 million TEU, at 40.9 million TEU, intra-regional volumes were slightly down. Export container trades showed strong increases of between 4.8% and 5.8% for Australasia, Middle East/ISC and Latin America. Exports from North America and Africa were down quite substantially, the former heavily affected by the high value of the US dollar. The Far East, accounting for more than 47% of the total volume, disappointed with a plus of just 2%.

Smaller container ships more competitive again

The lower marine fuel bills prices are now at levels last seen in the early 2000s were reducing big containerships’ cost advantages. Although this was not going to change the drive of lines towards fleets of larger vessel sizes in pursuit of economies of scale, it represented a stay of execution for Panamax ships. Low bunker prices may well give a new lease of life to Panamax vessels which, at current charter rates, can compete on costs with vessels twice their size on trades that cannot sustain the largest vessels, said Drewry. 

Although lines would likely continue to operate slow steaming loops for now, sustained lower fuel bills could eventually encourage a rethink given the cost-cutting potential of increasing speeds now that bunker costs were in the $ 100-150 per tonne range, rather than around $ 600 per tonne when slow steaming strategies were originally introduced a decade ago. At a bunker price of USD 100 per tonne, there are clear cost savings from increasing service speed and reducing the number of vessels per look, said Drewry. 

However, the analyst said lines would be wary of changing their strategies, partially because this would be disruptive, but also because it would increase effective vessel supply. Lines and alliances will have carefully planned networks; including terminal berth windows, based on their present slow steaming speeds, said Drewry. To increase service speed would require major re-planning and potential disruption. Lines may be nervous of making radical changes, in case bunker prices swing back up again. 

At present, as at the outset of slow steaming, there is an excess supply of tonnage, which would only be exacerbated if more ships were released as a result of speeds being increased.

Container freight rates continue to fall

The latest Shanghai Containerised Freight Index (SCFI) shows that prices per loaded 20 ft container on services out of China on the Asia-Europe trade dropped for a fifth consecutive week to $ 431, representing an 8.1% fall on the previous week. This now means that since carriers managed to hike rates through their successful general rate increases to $ 1,232 per TEU in the final week of last year, rates have fallen by more than 65% in a little over a month. 

Meanwhile, on the China-Mediterranean trade, spot market rates now stand at just $ 454 per TEU, having fallen by a further 7% over the past seven days. At the start of 2015, box prices on this trade had risen to $ 1,257 per TEU on the back of carrier GRIs, meaning that rates have now tumbled some 63.9% since their implementation. But it wasn’t just the Asia-Europe trades that suffered rate erosion. 

Now fewer than 10 of the 15 trades covered by the SCFI have fallen in price this week, including all the major East-West trades, pushing the index down to its lowest level this year at 566.92 points, as low demand and widespread overcapacity have continued to drive prices downward. Following slight increases last week, spot rates on both the Asia-US West Coast and Asia-US East Coast trade lanes fell back down this week. For China to US West Coast destinations, freight rates per loaded 40 ft container slipped 4.8% to $ 1,321, while those to the US East Coast dropped 5.1% to $ 2,341, according to the SCFI. 

This time last year would have cost shippers $ 2,242 per FEU to export their goods from China to the US West Coast and $ 4,978 per TEU to US port son the Atlantic and Gulf coasts. Rates on the transpacific trade also continued to erode on Drewry’s Hong Kong-Lost Angeles spot rate index, which fell $ 100 or 8% to $ 1,218 per FEU last week. Things are only set to get worse before they get better, according to Drewry.

Container weight rule may get delayed

The United States and any other country that is party to SOLAS can delay implementation of the International Maritime Organizations controversial container weight rule by up to a year, a fact bound to increase pressure on the US Coast Guard to extend the deadline past 1 July to avoid potential trade disruption. According to Article VIII(b) (vii) (2) to the amendment to the Safety of Life at Sea convention, any of the 162 signatory nations can inform the IMO of a delay of up to one year as long as it notifies the UN agency before the rule takes effect on 1 July. 

On behalf of its container line membership, the World Shipping Council has pushed for the rule requiring shippers to physically weigh containers and their cargo and present to carriers a signed Verified Gross Mass document for each container before it can be loaded at the port of origin. In several communications to the industry, the WSC has stated that the rule will become effective on 1 July, without noting the possibility of any delay. WSC members control some 90% of global container capacity.

Container shipping lines – dismal financial performance

With bonds worth $ 440 million maturing in April and July and lenders no longer willing to provide extra cash in addition to the current $ 5.8 billion debts, the situation seems to have become acute for Hyundai Merchant Marine. To secure extra money, the carrier presented a self-rescue plan that will see it sell off even more properties, while reportedly financiers instructed the carrier to negotiate charter rate cuts of between 20% and 30%. On sale or already sold are its interest in Hyundai Asan Corp, Hyundai Securities, its box terminal at Busan New Port and its bulker fleet.

According to preliminary results, Hanjin ended 2015 in the black, albeit with a small net profit of (converted) $ 6 million, against a loss of $ 384 billion in 2014. Considering that it reported a nine-month 2015 net company profit of $ 159 million, the outcome of the fourth quarter was disappointing, in particular due to a substantial loss of its dry bulk division.

First nine-month fiscal 2015-16 (April-December) results of Japan’s three main container carriers were rather disappointing. Operational profits for the container activities of “K” Line and MOL were written in red ink, while those of NYK were much lower than in the same months of the year before. Net, all three remained so far in the black, albeit with much lower profits than previously. For the full fiscal year, MOL has issued a profit warning, expecting to lose a horrifying JPY 175 billion ($ 1.45 billion).

In 2015, despite a 1% rise in carryings to 19.0 million TEU, A.P. Moller-Maersk’s container shipping division (Maersk Line, MCC, Seago, Safmarine and SeaLand) posted a turnover of $ 23.7 billion, down 13% year-on-year. Average freight rates fell from $ 1,315/TEU in 2014 to $ 1,104/TEU last year. The Danes’ net profit (NOPAT) dropped by more than $ 1 billion to $ 1.3 billion on the back of a new loss of $ 182 million in the fourth quarter. On a positive note, the carrier expects 2016 worldwide demand to grow by up to 3%. 

(The writer a Maritime Economist is a Chartered Fellow (Logistics Transport), Chartered Shipbroker (UK), Chartered Marketer (UK) and a University of Oxford Business Alumni. He is also a Fellow of NORAD/JICA and Harvard Business School (EEP).)


Recent columns