Container shipping ‘past the worst’

Analysts MSI says container shipping has passed the peak of the health crisis’s impact on demand. But with the speed at which economies and volumes can recover far from clear, the outlook in the second half of 2020 remains shrouded in uncertainty.

THE container shipping industry is ‘past the worst’ of the demand impact caused by the coronavirus pandemic, according to analysts.

Evidence suggests that nearly all trades are on the road to recovery, while capacity discipline demonstrated by carriers is showing no sign of any let-up which should ensure freight rates maintain their consistent level, according to a Maritime Strategies International market report.

Liftings data for April and May confirmed how lockdowns enforced globally at the peak of the pandemic weighed heavily on container demand, “but not more than generally expected,'' the report said.

In April, key longhaul trades reported year-on-year declines ranging from 10%-30%, with similar declines expected for May once official data is released, MSI said.

The analysts warned of greater uncertainty in the short-term despite a more positive outlook, as the speed at which economies and volumes can recover is far less clear compared to the obvious lockdown implications.

Daniel Richards, MSI’s container market analyst, said: “While there are some positive initial signals from the US in terms of consumer spending... we expect non-mainlane importing regions will face ongoing economic pressure and in the near-term, intra-Asia volumes are likely to ‘lead’ in a wider recovery.”

Such uncertainty will make it aligning capacity with demand no mean feat, as the world emerges from lockdown.

Mr Richards said, however, that there is little reason to expect a sudden downturn in freight rates in the near-term.

“The spike in transpacific spot rates is likely a temporary phenomenon, but along those lines it seems liner companies are more likely to under- than over-estimate volumes across different trade lanes,” he said.

“Market share-grabbing strategies by individual lines do remain a source of risk, but the evidence of the crisis so far suggests under-cutting activity is not an attractive strategy for the major liner companies.”

The knock-on impact of carrier austerity though has led to a significant increase in the idle fleet, with lines reducing exposure to the charter market wherever possible. This is in addition to substantial ship numbers undergoing repair.

“Over the past month this has finally had the expected impact on vessel earnings,” MSI said. “While market levels as of mid-June likely represent a ‘trough’ for most benchmarks, the road to recovery will be slow over the second half.”

MSI reported improvement in newbuilds on the supply side, due to HMM’s rollout of ULCS, ensuring deliveries remain brisk, while the reopening of shipbreakers in India has started to drive an increase in ship recycling that will ensure activity in the second half of 2020 will far exceed the fist six months of the year.

“Secondhand prices, on the other hand, likely have further to fall with next-to-no sales and little movement in broker timeseries, but as sales volumes increase in the second half of 2020 we expect sale values will fall for both ‘forced’ and ‘unforced’ transactions.”