News / Container shipping demand may dip this year, but market balance still improving

Hanjin's Subic Bay shipbuilding facility

Container shipping demand growth is expected to be lower this year than last.

But, in its latest overview of the sector, shipping association BIMCO still expected it to be “high enough to potentially improve the fundamental market balance”.

BIMCO forecasts demand growth in 2018 of 4% to 4.5%, against a supply fleet growth of 3.9%.

This supply increase takes into account the “delivery flurry” last month, which added some 254,000 teu, or 1.2%, of capacity to the global fleet, equal to the entire fleet growth of 2016.

BIMCO also recognised that the 398,000 teu demolition level of 2017 was “bound to decrease in 2018”, expecting some 250,000 teu of scrapping this year.

According to the latest demolition report from London broker Braemar ACM, just eight container vessels, amounting to 22,000 teu, have so far been sold for scrap this year, compared with 45 ships, 140,500 teu, by the same time in 2017.

Viewing the break in containership ordering from December 2015 through to August 2017 as “one to cherish”, chief shipping analyst Peter Sand added that new orders were now being placed “at an alarming pace”.

However, the impact on the supply-demand balance this year from newbuild deliveries could remain more limited, as Mr Sand expects only 40 of 53 ultra-large container vessels (ULCVs) will actually be received, as shipowners opt to invoke contract delay clauses and use their purchasing power to postpone deliveries into 2019.

Shipowners employed a similar strategy last year. BIMCO said that out of the 55 ULCVs stemmed for delivery in 2017, only 43 were actually received.

And ocean carriers appear to be managing capacity in a more judicious way than in previous years, evidenced by their ability to increase rates in early January, after seeing them gradually erode from August until the year end.

BIMCO also highlighted the influence on container market sentiment of the shrinking idle fleet. According to the latest Alphaliner data, this has now fallen to only 65 containerships for 191,441 teu. Several are in long-term lay-up, which means they may not be in a position to fulfil a charter, given the longer re-commissioning required.

As a result, shipowners are seeing an encouraging recovery in daily hire rates across most sizes, although there is still a long way to go to a return to sustainable profits on their assets.

Although several of the top-ranked container lines charter over half of their fleet capacity, they do not necessarily see higher charter rates as a negative. During the Maersk Group 2017 results presentation recently, Maersk Line chief commercial officer Vincent Clerc advised that the carrier was “seeing some pressure on time charter rates, mainly as a result of the idle fleet being low”.

But, he added: “We see that positively, because a low charter fleet hopefully means that capacity is not easy to come by and that will help our efforts to drive revenue growth.”