Change Required For Higher Rates
Overcapacity remains in the sector, where fleet growth is extremely uneven.
The growing imports of loaded containers into the US East Coast (USEC) continues to be a focal point for the container shipping industry. Growing by 10.4% in Q1-2018, the first three months saw 215,000 TEU more entering the USEC than in Q1-2017. Exports grew by 55,000 TEU in the same time span, growing outbound loaded containers by 3.8%.
This illustrates the constantly changing imbalance in US foreign trade. For every five containers entering the USEC in 2013, four were exported. In 2018, six containers are entering for every four leaving. The USEC trade lanes becomes more imbalanced by the day. This pattern is also seen on the US West Coast (USWC) trade lanes. For every ten containers entering the USWC in 2013, six were exported. In 2018, ten containers are entering for every five leaving. A clear sign of imports growing stronger than exports.
Despite the positive demand growth, freight rates have lost traction. The broad-based China Containerized Freight Index (CCFI) which covers ten major Chinese ports and includes not only spot rates, but also long-term contracts are down by 5% on average for China-USEC trades and down by 7% on average for China-USWC for the first 18 weeks of 2018. If singled out, the decline in spot rates alone is much deeper, as the USEC is down by 18% and USWC dropped 22% for the first 18 weeks of 2018 as compared to the same time last year.
Similar worrying signs are seen in the Far East to Europe trade. CCFI is down by 3% on average as compared to last year, whereas the spot rates (SCFI) have slid 15%. The latter was quoted at USD 584 per TEU for the week ending 20 April but rebounded to USD 825 per TEU at the end of May.
It’s not just freight rates that are low, growth in shipped volumes are also weak. During Q1-2018, transportation grew a meagre 1%. Only, 36,572 TEU more was dispatched compared to last year. If we assume a roundtrip on the Far East to Europe trade takes 10 weeks, that kind of growth requires only two additional 15,000 TEU containerships at a utilisation rate of 95%.
Of lesser importance, but still significant, backhaul trades in Q1-2018 from Europe and North America into the Far East are suffering a lot, falling by 8% and 5% respectively. Partly due to very strong growth on those trade in Q1-2017. Over a two-year period, Q1 backhaul volumes are up by 6.4% for Europe and 7% for North America. (Source: CTS)
In general, backhaul volumes into China are negatively affected by the import ban of waste products that came into force on 1 January 2018.
As highlighted within our macroeconomic section, EU manufacturing PMI has lost pace in 2018, another reason behind the lost volumes.
The container ship fleet has now grown by 2.9% in the first four and a half months of 2018. BIMCO expects 1.1m TEU gross to be delivered for the full year and 250,000 TEU to get demolished with the fleet growing by 4.3%. By 1 May, 64 ships with a combined capacity of 534,000 TEU have been delivered. Out of which 35 ships were below 4,000 TEU in size and 10 ships were above 20,000 TEU.
In terms of demolishing containerships, January was weak and February even weaker. The months of March and April only had one containership each demolished. At such low pace we will not get to the 250,000 TEU in demolitions BIMCO expects. However, our estimate remains unchanged for the time being as when reality bites in selected places of the freight market, we expect demolition to pick up. Should demolition volumes only reach 100,000 TEU, the fleet would then grow by an estimated 5.0%.
We continue to see no large containerships being demolished, with a 2018-average of 1,840 TEU for the 14 demolished ships, as the large containerships are still quite new. The average size of a newbuild ships is 8,350 TEU. Overcapacity remains in the sector, where fleet growth is extremely uneven.