Ocean freight rates stay on a roll, but are they high enough for carriers?
Following a mini-recovery of container spot rates on the major east-west trades in recent weeks, ...
Strong cargo growth, driven by vigorous retail restocking, will result in global demand growth this year of some 4%, compared to a capacity increase of about 3%, according to the latest analysis from Drewry.
And with supply and demand tightening, profitability in the liner industry is assured this year, said the consultant.
“The tide of low freight rates is reversing,” said Drewry, forecasting an average, across-the-board 16% hike in rates, with yet more increases to come, and “much higher contract rates on some routes”.
Speaking during the firm’s Container Market & Freight Rate Outlook webinar presentation today, director Philip Damas said there was no doubt that investors in container shipping would make money this year, estimating a 12-month cumulative industry profit of about $5bn.
Describing the rush of M&A activity in the past two years as a “super-cycle” of carrier consolidation, Drewry says the Cosco-OOCL deal, along with other mergers and acquisitions, has “changed the playing field”, leaving shippers with much less choice.
Mr Damas said: “In effect, we have moved from an industry where we used to talk about the top 20 carriers, to 2018 when there will be just 11 left from this list.
“This, we suggest, will have very deep repercussions on the entire industry; on shippers, suppliers and terminals. Also on the level of competition between the carriers, where an industry that is moving, quite frankly, towards an oligopoly, will give carriers much more control than in the past.”
And he poured cold water on talk about further M&A activity, including recent rumours about PIL, saying regulators were getting tougher, as evidenced by the trade sacrifices made by Maersk Line in its takeover of Hamburg Sud.
Drewry said the forecast for fleet growth for 2018 looked higher, at 5%, as a consequence of the push back from several ultra-large container vessel (ULCV) deliveries this year – although at this stage, with demand at around 3.5%, the analyst did not expect the gap to have much of an impact on rates next year.
After that, the forward container vessel orderbook is “almost dead”, noted Drewry, a factor that will certainly encourage investors as they smell the opportunity for significant returns.
Interestingly, it is the Ocean Alliance of CMA CGM, COSCO/OOCL and Evergreen that has by far the biggest orderbook.
In 2018, the Ocean Alliance is expected to receive over 500,000 teu of new vessels, mostly ULCVs, compared with some 250,000 teu for 2M partners Maersk Line and MSC and only around 175,000 teu for THE Alliance partners Hapag-Lloyd, Yang Ming and soon-to-be merged K Line, MOL and NYK.
There is a big risk for shippers from the wave of M&A activity, said Mr Damas urging them to ‘rethink” their current strategy of long- or short-term contracts combined with use of the spot market, if they did not want to pay the price of significantly higher freight rates.
“The old strategy will no longer work,” he said.