Container shipping market conditions improved in 2016 as fleet growth was put under control, but this year will be another challenging one for the overall shipping industry amid a continued slackening in trade, predicts the Baltic and International Maritime Council (Bimco).
“The shipping industry has its work cut out going forward in 2017 as the International Monetary Fund (IMF) forecast the lowest level of global GDP growth since 2009. 2017 will see another year of die-hard competition, which now includes tankers. In 2016, the container shipping industry bit the bullet in terms of demolition and consolidation to help the market to recover. The dry bulk sector needs to copy that approach,” it said.
With global GDP growth being currently driven by service sectors and developing and emerging economies which results in a lower “GDP-to-trade multiplier,” Bimco expects a lower level of shipping demand than was seen in the past.
“The longer global economic growth remains weak and lacks investment, the lower future growth potential for shipping,” said the council.
It said that while Europe has been improving in 2016, the U.S. was stagnating and Japan was at a standstill. “There has not been much global change aside from some interregional trade flows and there has been no real growth of demand on a broader scale.”
The full restoration of shipping markets will need several years of solid improvements to lift fleet utilization rates. Sector overcapacity almost everywhere must be reduced, it urged.
Looking in particular at container shipping in 2016, Bimco said the year stands out in terms of consolidation, both in outright mergers and in newer and larger alliances being forged to cut cost. There was also the unprecedented event of a government-sponsored shipowner filing for court protection.
“After deteriorating market conditions in 2015, with a very high fleet growth and a sensationally high number of new orders for future delivery, 2016 got off to a bad start. The need to match the supply of container shipping capacity with global demand for containerized goods became even more urgent,” it continued.
The container shipping industry acted in this “self-inflicted” shipping market crisis by using slow-steaming and idling, limiting new orders, scrapping, and consolidation.
Additionally, the very low number of newbuilding orders was backed up by an all-time high of demolition capacity, reducing the harmful effects of new ships being delivered. “Panamax ships went out of fashion, resulting in further value erosion of the ship size that turned out to be the one which was squeezed out between the feeders and the very large ships,” the report said.
“Generally, the container shipping industry has found it difficult to adapt to the new normal where demand grows by a multiple of global GDP growth of one or even below, unlike the multiplier of two or more experienced year on year in the past. Nevertheless, market conditions ended up improving in 2016 as fleet growth was lower than demand growth, the first time since 2010.
“Bimco expects the container shipping segment to see a net fleet growth of around 3.1% in 2017 (1.1% in 2016E). If the multiplier gets back to one, and the IMF forecast of 3.4% becomes reality, the market will neither improve or worsen in 2017.”
Photo: Rehman Abubakr
