Shipping Heading to a Better Tomorrow
The container shipping industry is facing an exceptionally high level of uncertainty amid numerous headwinds, according to shipping consultancy Drewry.
The uncertainty ranges from the extra cost associated with IMO 2020 and how much carriers will recover from shippers, to the possibility of a trade recession and unknown future engagement by shipowners in large vessel building programmes.
“The degree of uncertainty is probably the highest it has been in a decade,” said Simon Heaney, senior manager, container research at Drewry and editor of the Container Forecaster.
Every region is expected to see container port handling growth in each and every year of the five-year forecast horizon of the Container Forecaster, albeit at a slightly slower pace than Drewry was previously anticipating. Moreover, supply growth is expected to be below that of demand through 2023, which will assist the industry’s ongoing effort to rebalance an over-supplied market.
Drewry expects that the industry will be close to equilibrium by 2023 with its Global Supply-Demand index reaching a reading of 97.1.
“Our analysis makes it very clear that it is essential that carriers increase their fuel recovery ratio, or else there will be serious consequences,” said Heaney.
“What gives us confidence of a better tomorrow is that despite weaker supply-demand fundamentals, carriers last year managed to secure marginally higher rates, proving themselves capable of exerting a greater degree of pricing discipline. We expect IMO 2020 to raise the industry’s fuel bill by around 50% in 2020, which will certainly sharpen minds and serve to keep carriers on track.”
Drewry expects strong resistance from BCOs to new BAF formula, but carriers could be more successful than in the past due to the wider market acceptance of burden sharing and the fact that lines started discussing mechanisms early with shippers, giving them time to iron out any teething pains.
“Most shippers accept that they will have to pay more but they rightly expect any increase to be justified with a credible and trusted mechanism – in other words the ball is very much in the carriers’ court,” said Heaney.