Instability in Container Shipping to Continue in 2017
Posted by netrix | Jan 26, 2017
A major freight benchmarking and intelligence service has predicted that a range of factors will undermine the stability of the container shipping market during 2017 in spite of the recent rise in box prices.
Among the factors that Xeneta predict will impact on the market during the coming year are the election of the protectionist Donald Trump as US President, the UK's vote to leave the EU and other moves towards less trade-friendly policy positions around the world. At the same time, the industry has a structural issue with overcapacity which has implications for carriers and their suppliers.
The issue with overcapacity made 2016 a disastrous year for the container shipping industry. Box rates dropped precipitously which caused carriers across the industry to lose large sums of money. The major casualty was Hanjin, which could no longer afford to continue in business.
Xeneta found that short-term box rates began to improve in the final months of 2016. In the world's most used trade route between the Far East and the US, the average price of a 40ft container increased from a low point of $1,164 in April to $1,716 by December. The average price on the Far East to Northern Europe trade route increased from $791 to $1,878.
Long term rates that have been agreed so far in 2017 have been higher than in 2016 and almost back up to 2015 levels. However, there has been clear evidence of European shippers delaying coming to agreement on long-term rates, which in previous years they would typically have concluded during January. This reflects shippers' lack of certainty about the world economy. The fact that carriers are willing to let shippers put this off reflects confidence on their part that price increases will continue during 2017.
Patrick Berglund, CEO of Xeneta, said, "At the moment, it looks like a sellerâ€™s market, and if the carriers hold firm then shippers will eventually have to accept higher rates. However, the fact of the matter is there remains a structural overcapacity of containers-to-cargo.
â€œThat puts carriers in a weak position and creates huge competition for business. So it only takes one or two carriers to drop rates and chase market share and, lo and behold, prices fall again. The volatility will return.â€
Another issue is that shipbuilders are struggling to sell any new vessels to a market that already has too much capacity. As a result, some are offering new build ships at less than their cost to produce in order to keep their workforce occupied. If carriers are induced to purchase these ships then overcapacity could worsen.
The key message that Xeneta wants its people in the container industry to take away is that they should do all they can to improve the efficiency of their operations. Saving a few pounds per container could make a huge difference to a company's sustainability if the market takes a turn for the worse rather than continuing along its presently positive path.