Drewry Container Forecaster News

Container industry revenues are contracting faster than carriers can cut costs. First-half results so far suggest sales are down by around 18%, increasing the pressure to reduce costs. The container shipping industry is currently enduring a severe revenue contraction that is placing carriers under enormous pressure to squeeze more savings wherever they can and is driving the latest round of M&A activity. The first-half 2016 financial results that have been published so far from a handful of major carriers paint a very depressing picture for the industry. First-half revenue from the sample companies listed in Table 1 was down by 18% on average, which if it holds true for the industry across the full year would mean that carrier income will shrink by approximately $29 billion against 2015.

While the shipping industry struggles through a historic downturn, ship scrapping business is seeing accelerating demand, reports WSJ. The global economic slowdown is putting shipping through its most bruising period since the 2008 financial crisis. With the capacity running some 30% ahead of shipping demand, orders for new vessels have fallen to a record low this year and companies can’t get rid of ships fast enough. In the five years to last year, owners ordered an average of 1450 ships annually. This year ­orders to last month fell to 293 vessels, according to British marine data provider Vessels Value. About 1000 ships that have the combined capacity to haul 52 million tonnes of cargo will be dragged on to beaches, cut into pieces and sold for scrap metal this year.

More containership capacity is being demolished than ever before, including old-design ships made redundant by the new Panama Canal. Drewry checks if this end the current capacity surplus? Now is not a good time to own an old containership. Drewry’s Container Forecaster (June 2016) found that, for the first time, 450,000teu of containership capacity is expected to be scrapped in just one year, as the containership sector recognises that there are far too many ships chasing too little cargo. Based on an average size of 3,000teu for ships which are being scrapped, this means that about 150 mainly old and medium-sized containerships will be pulled out of the market or out of temporary idle positions and sent to the scrapyard in 2016. In 2015, demolitions were less than half this level.

The number of container ships transporting goods around the world has fallen in the first half of 2014 but the total capacity of the global fleet continues to increase, consulting firm Drewry Maritime Research said in a note on Monday. Drewry Maritime Research foresees a fall in the number of container ships on an annual basis this year for the first time in at least 20 years. The container shipping industry has been struggling with over capacity because of there are too few goods to transport on too many vessels as a result of the economic downturn. Despite fewer ships, nominal capacity of the global fleet continues to increase by about 6 percent a year, Drewry said.

Cargo growth on intra-Asia routes is attracting deep-sea carriers due to the availability of cheap charter vessels and economies of scale between China and SE Asia, but regional players also know how to form defensive alliances, reports Drewry Maritime Research in its latest 'Container Insight Weekly'. Financially troubled deep-sea ocean carriers are increasingly seeking salvation in the intra-Asia market due to higher than usual cargo growth and the availability of cheap vessel charter rates. Seldom does a month pass without the announcement of at least one new regional service, some of which now deploy vessels over 4,000 teu. Maersk-owned MCC Transport/NYK’s weekly Japan-China-Thailand schedule calling at Tokyo, Yokohama, Nagoya, Kobe, Hong Kong, Shekou, Laem Chabang, Xiamen and Tokyo.

Drewry believes that the industry has emerged from the global recession with both carrier profitability and demand figures bearing this out, but still ask whether or not the industry has learnt anything? The fact that no major companies went to the wall still seems to have insulated the industry from the despair of 2009 and there is now the feeling that perhaps the dark days did not happen. In essence, Drewry observes that it is back to normal operating conditions. A number of carriers have come back into the newbuild market, believing it is the right time to buy again despite the fact that bank financing is now much more circumspect.

Drewry’s latest Container Forecaster is optimistic that a market‘recovery is underway but cautions that close monitoring of key market drivers is essential as the patient is not off the at-risk list yet. The latest container trade data suggests we may have entered a real recovery phase but comparisons with the depth of the recession in 2009 must be treated with caution. With a major carrier failure thus far averted and container volumes on the upturn, many believe this year will see a return to better times and profitability. But, it is still early days; a large number of post-Panamax vessels are due for delivery this year and most of the all important transpacific rate contracts have still to be signed.

Drewry’s latest Container Forecaster indicates that the momentum of the industry has entered a new phase as financial aspects and implications seem to have become even more important than poor global demand and over-supply of ships, although clearly all are very inter-related. Neil Dekker, editor of the Drewry Container Forecaster, stated: “ Several large container operators would have gone to the wall in 2009 if major benefactors or governments had not stepped in to bail them out. There is a strong argument for thinking that if a major carrier had been allowed to fail, the market would have had a much better opportunity to correct itself and lay the foundations for a more profitable industry in the long-term.

Drewry Shipping Consultants, in its latest Container Forecast, concluded that 2009 will be the toughest test yet for the Container industry and further casualties are a real possibility. During the last quarter of 2008, carriers have been doing their best to reduce capacity through suspension of a number of high profile east/west services. However, Drewry argues that the gap between supply and demand is still too big. For the short to medium term, carriers can at best only stabilize freight rates that, on the Asia to Europe trade, have recently fallen to uncommercial levels. Drewry’s revised estimate for 2008 global container traffic growth is 152.8 million teu…