Container shipping has been enjoying a gold run, hampered only by recent freight rates falls, as a result of overcapacity. Still, a recent report from BIMCO suggests that while the slide in rates should continue of oversupply of capacity isn’t reduced (and so far some liners appear to be hesitant to take capacity out of service), the report predicts that demand will remain firm during 2011 (in the higher single-digit area), although not a very strong rebound should be expected. “Private consumption in the main consumer societies of Europe and the US continues to struggle. For the recovery to become sustainable, private consumption has to take over from the large public stimulus packages that have driven demand forward – and we are still waiting for that to happen in a number of key countries. This is why the IMF just recently revised the growth forecast for the US downwards, while the growth forecast for EU, despite being upwardly adjusted, still remains quite depressed” said BIMCO’s analyst Peter Sand.
In the meantime, volumes aren’t expected to rise again until the beginning of February of 2011, following the Chinese New Year. The report estimates that more than 300 vessels could become idle until then, before markets return should the industry respond firmly to the lower volumes in its quest to keep freight rates from sliding further. Increasing idling of ships is expected to hurt tonnage providers the most. This is evident from the development in the time charter market, where the average charter period has gone from 18 months in first half of 2008 down to 6 months now. Charter rates also have some ground left to cover before they come back to pre-crisis levels. Tonnage providers sit on a hot spot right row and hesitate to make deals in the hope of better charter rates down the road. Meanwhile, operators have the upper hand and could benefit from a large supply of new ships adding downward pressure on charter rates a few months down the road.
“Despite a massive inflow of new containerships in 2010, 2011 and 2012, it is not expected that the oversupply of capacity will cause freight rates to stay depressed throughout the next couple of years. The markets know by now how to handle a drop in demand and make freight rates recover and bring about a return of black ink to the bottom lines of the liner companies. A drop in demand as we saw in 2009 is not likely to be repeated unless an unexpected double-dip should materialize. Idling of vessels will be the swing factor for control of supply – while slow steaming and extra slow steaming is here to stay for the benefit of the industry as well as the environment” said Peter Sand.
Still the numbers of ships and amount of TEU currently on order has grown significantly especially during the past couple of months, which is an indication that orders are placed at a faster pace than ships are being delivered. According to BIMCO, the active fleet has grown by 9.1% so far in 2010, driven by the 1.3 million TEU that has been delivered year-to-date in the form of 254 new ships. Meanwhile, only 78 vessels, with an average cargo capacity of 1,545 TEU and average age of 28 have been demolished so far in 2010. The potential for demolition in the overall container segment in the coming years remain irrelevant for overall fleet growth, as the containership fleet is so young. Future scrapping is likely to affect the smaller sub-segments of the fleet as they contain old tonnage and hold the largest scrapping potential as markets develops. “While the container industry is and has been the segment where postponements have taken place the most, it seems as if that effect has been catching up during the course of 2010. While deliveries in dry bulk and tanker segments seem to end in the lower end of BIMCO estimates, containership deliveries seem to end in the higher end of BIMCO’s estimates for fleet growth in 2010.
The supply of newbuildings is going to be significant in 2011 and in 2012, as it was in 2010. Supply growth of 8% in coming years is expected. It appears unlikely that such inflow could be more or less balanced by demand, as it has been during most of last century. However, the industry has to continuously manage supply in the coming years as the industry will drag along a fundamental imbalance between supply and demand as ship supplies have grown by 15% during the last 1½ years while volumes are only back at par with 2008. Congestion, insufficient infrastructure to cope with cargo flows and changing trade patterns are other matters affecting the market balance” concluded the report.