'A hard landing' as Asia-North Europe freight rates collapse to $1,000 a box
There seems to be nothing ocean carriers can do – or are prepared to do ...
Despite overcapacity fears from a flood of newbuild ultra-large ships, as well as recent container spot rate erosion, analysts have a surprisingly positive outlook on profitability for container shipping this year.
In fact, Drewry said: “The reality of supply growth in 2018 is far less frightening than it was previously.”
It said that due to a number of deferrals and slippage of newbuild tonnage, the “real world” of an influx of between 1m and 1.2m teu will be “largely manageable” and would not damage the supply-demand balance.
“If our forecast is correct, the annual delivery total for 2018 will be broadly unchanged from 2016 and 2017, which marked a significant slowdown compared with the previous six years,” said Drewry.
“Crucially, the new supply growth forecast for the current year is lower than demand, meaning we expect the global supply-demand index to nudge upwards this year. The market will still be over-supplied, but not catastrophically so.”
However, Drewry said the “top-heavy” delivery schedule in the first half of the year will have created a negative sentiment for the annual Asia-Europe and transpacific contracting seasons.
Indeed, the all-important container spot rates between Asia and North Europe are currently at approximately $580 per teu, compared with some $900 per teu 12 months ago.
And between Asia and the US west coast, spot rates have stubbornly refused to nudge upwards and remain about 12% below rates of a year ago, at around $1,150 per 40ft.
Translating Drewry’s more upbeat take into pure financial analysis, investment banker Jefferies told clients today: “We continue to believe the container shipping sector is set to benefit from a rapidly improving market balance.”
Although container lines on the major east-west tradelanes now carry about 50% of their containers on a spot or short-term contract basis, which is reflected in the weekly SCFI (Shanghai Containerized Freight Index), Jeffries points to the much broader CCFI (China Containerized Freight Index), based on the price of containers from all major ports in China and is a composite of contract rates and spot rates, as being “relatively stable”.
Moreover, Jeffries has noted remarks from executives at Maersk Line and Hapag-Lloyd advising that newly agreed contract rates have “more than compensated for higher bunker prices”.
It added: “With capacity expected to tighten from H2, we believe the outlook for container freight rates is favourable”.
However, the liners are facing a number of inflationary pressures this year, not least a charter market that has shifted back in favour of owners and will add some significant extra operating costs to the P&L account.
Nevertheless, analysts at Jeffries are projecting “strong earnings momentum” from both Hapag-Lloyd and Maersk Line for the first quarter, ahead of their results due on 14 May and 17 May, respectively.
Analysts have been wrong before, but the German and Danish carriers’ Q1 results and outlook will provide some concrete guidance for the industry.