BIMCO calls for end to boxship orders to keep industry viable
THE Baltic and International Maritime Council (BIMCO) has warned in its latest report that for the container shipping industry to stay on track into profitability, it's vital that new orders are rarely placed and only against retirement of other ships.
It also pointed out that slow steaming and idling remain essential parts of a freight rate improvement until the market (especially the demand side) is strong enough to support extra capacity in the key trade lanes.
Cascading, a bid to gain economies of scale, has damaged earnings on all trade lanes, as ships way too big for requirements have been introduced aggressively. But without enough cargo, running ships with too much capacity brings down utilisation and profitability.
Drewry statistics show that overall container demand grew by two per cent in the second quarter of 2016 year on year. But global container demand is struggling to achieve a GDP-to-trade multiplier of one, said BIMCO, the shipowners group that represents 65 per cent of the commercial tonnage afloat.
"Reflecting on our last report, where BIMCO stated that demand is not really going anywhere, we now see a development, minor and slow, but above all positive," the BIMCO report said.
The IMF notes that "high frequency" indicators point to lower economic growth in the second half of 2016 for the euro area. This could cool the East Asia to Europe trade even before it was back on track.
"As we are now well into the peak season of the year (Q3), demand growth may support utilisation levels of the ships, but severe overcapacity in the market and recently agreed contract rates on the transpacific trade lanes mean the pressure remains on the container shipping industry," the report said.
Over the coming year, carriers will feel the drag of the new, and much lower level of annual transpacific (price and volume) contract freight rates which were agreed on May 1, said BIMCO.
Anecdotal evidence indicates that the price offered to the largest customers has dropped below US$750 per FEU for US west coast bound containers and $1,500 per FEU for those east coast bound. These levels reflect the poor spot market during the negotiation period.
Agreeing to such low rates demonstrates clearly that container shipping customers are enjoying a negotiating power not seen since 2009. And they are taking advantage of it. Carriers can fear an even worse spot market in the coming year. The fight for market share among carriers will surely exaggerate this imbalance, making a bad situation even worse.
"For the full year to balance out between supply and demand growth, we need demand to grow in Q3 and Q4. Year-to-date the balance has worsened. Demand has been slow, part of the idle fleet has been reactivated and new ships have outstripped the number of ships being demolished," said the report.
THE Baltic and International Maritime Council (BIMCO) has warned in its latest report that for the container shipping industry to stay on track into profitability, it's vital that new orders are rarely placed and only against retirement of other ships.
It also pointed out that slow steaming and idling remain essential parts of a freight rate improvement until the market (especially the demand side) is strong enough to support extra capacity in the key trade lanes.
Cascading, a bid to gain economies of scale, has damaged earnings on all trade lanes, as ships way too big for requirements have been introduced aggressively. But without enough cargo, running ships with too much capacity brings down utilisation and profitability.
Drewry statistics show that overall container demand grew by two per cent in the second quarter of 2016 year on year. But global container demand is struggling to achieve a GDP-to-trade multiplier of one, said BIMCO, the shipowners group that represents 65 per cent of the commercial tonnage afloat.
"Reflecting on our last report, where BIMCO stated that demand is not really going anywhere, we now see a development, minor and slow, but above all positive," the BIMCO report said.
The IMF notes that "high frequency" indicators point to lower economic growth in the second half of 2016 for the euro area. This could cool the East Asia to Europe trade even before it was back on track.
"As we are now well into the peak season of the year (Q3), demand growth may support utilisation levels of the ships, but severe overcapacity in the market and recently agreed contract rates on the transpacific trade lanes mean the pressure remains on the container shipping industry," the report said.
Over the coming year, carriers will feel the drag of the new, and much lower level of annual transpacific (price and volume) contract freight rates which were agreed on May 1, said BIMCO.
Anecdotal evidence indicates that the price offered to the largest customers has dropped below US$750 per FEU for US west coast bound containers and $1,500 per FEU for those east coast bound. These levels reflect the poor spot market during the negotiation period.
Agreeing to such low rates demonstrates clearly that container shipping customers are enjoying a negotiating power not seen since 2009. And they are taking advantage of it. Carriers can fear an even worse spot market in the coming year. The fight for market share among carriers will surely exaggerate this imbalance, making a bad situation even worse.
"For the full year to balance out between supply and demand growth, we need demand to grow in Q3 and Q4. Year-to-date the balance has worsened. Demand has been slow, part of the idle fleet has been reactivated and new ships have outstripped the number of ships being demolished," said the report.