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Improving freight rates on the main east-west container tradelanes may offer some comfort to embattled ocean carriers reporting disappointing first-half results.
The latest Container Shipping Forecaster from Maritime Strategies International (MSI) does not expect a repeat of last year, when mainline spot rates had reached their pinnacle by week 30 and then declined during the peak season.
MSI says it expects 2018 to “avoid this trend” and is predicting peak season transpacific rates to reach some 10-15% above 2017 levels, with Asia-Europe rates about 5% higher.
Moreover, it noted that, with the exception of Asia to North Europe, “mainline freight rates currently sit above their equivalent 2017 position”.
Container lines desperately need a decent peak season in the third quarter to mitigate a disappointing first half.
They collectively lost some $1.2bn in Q1 and it is difficult to see the second quarter having been any better. Indeed, given the higher cost of fuel and charter costs in Q2, some analysts are expecting the interims to show a deteriorating trading picture.
In June, Hapag-Lloyd felt obliged to issue a profit warning, citing “an unexpectedly significant and continuing increase in operational costs since the beginning of the year, especially with regard to fuel-related costs and charter rates”.
The German carrier will publish its H1 results on 10 August.
Notwithstanding the welcome impact of a strong peak season on voyage results during Q3, carriers will hope that any momentum will carry over into the Q4 slack season and provide a springboard for a better start to 2019.
However, MSI warns that, despite the prospect of improving freight rates, this positive development for carriers remains “vulnerable to rising costs”.
“Higher volume growth and more aggressive capacity management are the obvious drivers to improved levels, but these gains will be largely eroded by growing bunker costs and liners will struggle with profitability for the remainder of the year,” predicts MSI.
Commenting on a surge in June volumes on the transpacific tradelane, which has been attributed to “panic-buying” as the trade war scenario between the US and China escalated, MSI said that although the “noise” around the imposition of trade tariffs had focused on the mainline trades, “their potential impact will be felt more widely”.
The biggest effect of tit-for-tat tariff hikes will, however, be felt on the eastbound transpacific route, but MSI remains concerned about the indirect impact on other trades.
“The key area to watch is how far tariffs on US imports risk disrupting complex cross-border supply chains which feed into finished products and which are especially key to the high density of regional and feeder services in the intra-Asia market,” said MSI.
Meanwhile, for containership owners, the consultant said there was “limited charter market upside” expected after the welcome rebound in daily hire rates so far this year.
It said time-charter rates had “levelled off” in recent weeks, not least due to recent moves by carriers to cull services and restrict capacity on some routes to improve profitability.
MSI said that, “given the justified sense of buyer’s remorse over 20,000 teu+ newbuildings”, which has been the root cause of overcapacity issues this year, it is expecting a “pause for thought” by carriers on ordering new ULCV tonnage – with the possible exception of Cosco.