No recovery for Container Traffic in sight - Drewry

Asia to West Africa container traffic fell by 19% in the third quarter; the end-year result will not be much better.
The IMF’s latest World Economic Outlook, published last month, described “multispeed” growth for sub-Saharan Africa economies with the divide between the haves and have nots hinging on different nations’ exposure to commodities. The biggest West African economies of Nigeria and Angola are struggling to adjust to lower oil revenues with the former expected to see GDP contract by 1.7% this year and the latter to flat-line.
 
The outlook is not much better for 2017 with Nigeria’s economy predicted to grow by just 0.6%, while Angola’s output is expected to rise by a meagre 1.5%. In contrast, smaller, non-resource exporting economies in the region such as the Ivory Coast and Senegal are (and will continue) enjoying GDP growth of more than 5%. These economies are benefiting from low oil prices and enjoying healthy private consumption and investment growth rates, the IMF said.
 
Container flows into the region are reflecting the fact the economic slowdown is hitting the largest economies the hardest. After nine months of 2016, southbound shipments from Asia to West Africa were down by 11%, according to data provided by the Container Trades Statistics Ltd. Traditionally one of the strongest periods of the year, the third quarter saw volumes slide by 19% year-on-year, the worst decline on our records dating back to 2012 and the seventh consecutive quarter with a negative comparison.

Figure 1: Southbound Asia to West Africa container traffic ('000 teu)  - See Fig 1

The end-year 2016 deficit will almost certainly beat the 10% drop in annual volumes experienced last year. The average monthly Asia to West Africa volume over the past 12 months up to September 2016 fell to 101,700 teu, 11.6% down on the same month last year (see Figure 2). The speed of the decline is accelerating and indicates a trade decrease of around 12-14% come end-December.

Figure 2: 12-month rolling average of southbound Asia to West Africa container traffic

Fig 2 Source Drewry Maritime Research, derived from Container Trade Statistics

Despite the dramatic fall off in volumes Asia-West Africa carriers did not adjust their capacity accordingly. The total slots available to the market remained roughly unchanged through the third quarter (see Figure 3) with missed voyages temporarily limiting the impact of bigger ships that have been cascaded into the trade. As of last month, MSC was operating five ships of over 10,000 teu on its Africa Express service (the largest being the 13,100 teu MSC Altair) that has helped boost the average size of ship deployed to around 5,500 teu.

Figure 3: Southbound Asia to West Africa capacity ('000 teu)

Fig 3 Source Drewry Maritime Research

Carriers’ lack of response to falling volumes had negative consequences for ship utilisation and freight rates. The average ship utilisation on the southbound leg of this trade fell to 56% in the third quarter, down from 63% in the second quarter. Consequently, the brief uptick in rates seen in July and August was quickly erased by September with a further drop seen in October. Representative 40ft container spot market rates between Shanghai and Lagos fell to just $1,200 in October, the lowest since April and nearly half their value for the same month last year.

Figure 4: Southbound Asia to West Africa utilisation v rates

Fig 4 Source Drewry Maritime Research

Notes: *Based on effective capacity after deductions are made for deadweight and high-cube limitations and then again for out-of-scope cargoes, i.e. those relayed to areas outside the range. Where relevant, operational capacities have also been adjusted for slots allocated to wayport cargoes. Data subject to change
Source: Drewry Maritime Research

Our view

The third quarter drop in volumes was unexpectedly severe and must have caught carriers out by surprise, judging by the lack of response on the supply front. This trade is in dire need of capacity rationalisation, along the lines of what happened in Asia-East Coast South America, if a freight recovery is to be achieved