Container Demand Downgraded
Amid a gloomier world economic outlook and rising trade tensions, the forecast for container demand was downgraded for the next five years, shipping consultancy Drewry said.
Previously, the global supply-demand index was expected to take incremental steps upwards through 2022, by which time the industry would at long last be close to equilibrium. However, the new forecasts suggest that the industry now faces being stuck with the current over-supplied situation for several more years.
“The anticipated re-balancing of the container market looks to have been postponed. That’s more bad news for carriers that are facing substantial cost increases as a result of stricter ship fuel standards from 2020,” said Simon Heaney, senior manager, container research at Drewry.
It has been a topsy-turvy year in the container market with demand growth oscillating on a quarterly basis, from the highs of the first quarter to the lows of the second. Growth returned with a vengeance in the third quarter, but at this stage it is unknown how much it was stimulated by the latest round of tariffs issued by the US and China, or how hard the come down will be in the fourth quarter without the expedited cargoes.
Drewry’s impact assessment of the latest round of US tariffs imposed last month indicate that eastbound Transpacific flows could be hit with an opportunity cost of approximately 1 million TEU next year.
“It is an unfortunate fact that trade barriers could yet be raised higher with the prospect of further tit-for-tat measures. In such a fluid situation it is impossible to second-guess where this will end,”Heaney said.
On the supply side, greater than expected new ship deliveries, combined with fewer demolitions in the second quarter prompted Drewry to marginally raise the fleet growth rate forecast for this year.
Drewry’s outlook for freight rates and carrier profitability in 2018 and 2019 is little changed from earlier estimates, despite the downward revision of trade forecasts and more bearish outlook for vessel supply. While the market remains fiercely competitive, there are signs that some aspects of predatory pricing practices are receding and carrier vessel deployment more disciplined.