News / Container shipping pundits paint gloomy picture of more sluggish growth in 2016

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Any semblance of supply-demand balance in container shipping any time soon is “a lost cause”, Drewry’s Stijn Rubens told delegates at Intermodal Europe in Hamburg yesterday.

The senior consultant at Drewry Supply Chain Advisors, said 2015 was likely to turn out to be the worst year – excluding 2009 – for container demand growth since the 1970s, at just over 2%.

Mr Rubens said weak demand on many tradelanes had been exacerbated by a succession of new ultra-large container vessels (ULCVs) being deployed on Asia-Europe routes, cascading “unsuitable” bigger ships  down to transpacific and north-south services.

The consequence is freight rates on all routes under severe pressure, particularly in the second half of the year, turning many hitherto profitable voyages into lossmakers.

“China’s economic slowdown is having a profound impact on world trade,” said Mr Rubens, “but Europe is the sick pupil in the class.”

And he predicted more “enormous rate volatility” in 2016, as trades continue to suffer excess capacity and sluggish growth. Drewry’s volume growth prediction for next year is 3.3%.

Mr Rubens also said there was no evidence that ocean carriers were losing their appetite for ordering ULCVs, given that newbuild prices at Asian yards were very low.

“There is still an incentive to buy big ships,” he added.

He expected container lines to continue to mitigate the oversupply situation by voiding sailings and, consequently, transhipment activity increasing as ships are used as feeders between hubs.

He also believed that carriers would continue their strategy of pushing for monthly general rate increases, underpinned by cancelled voyages.

Mr Rubens said the ratio between contract and spot cargo was likely to change, with the latter growing in 2016 as carriers declined to sign annual volume contracts at sub-economic levels. There was a possibility this could lead to a pick-up in index-linked contracts, he suggested.

John Fossey, consulting editor for World Cargo News, argued that the recovery of the past three years was stalling.

“The world is slowing down,” he said, and suggested that annual growth of 2- 3% could be the new normal. “It’s not a great picture for carriers,” he added.

He also predicted that continued malaise would lead to more consolidation in container shipping and force the break-up of the four east-west alliances, prompting a fresh game of ‘musical chairs’ container lines worked out new vessel-sharing agreements.

However, both Mr Rubens and Mr Fossey believed ending sanctions on Iran could offer some opportunities for carriers, while new free-trade pacts and the opening of the enlarged Panama Canal were other positives.

Mr Fossey also said there were opportunities for “savvy carriers” to offer value-added regional and direct services to target niche market business.