Box shipping forecast raised as industry resilience shines

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  • 2020 container shipping market outlook  upgraded to -3.3%, up from -7.3% after smaller-than-expected decrease in  Q2 port throughput
  • Container trade resilience during pandemic rested on surprisingly high consumer confidence on the back of government support
  • 2Q container shipping EBIT reached $3.5 billion, the best quarterly performance in years
  • Drewry upgrades guidance for operating profit in 2020 to $11 billion, up from $9.2 billion

The container shipping market outlook for 2020 has been upgraded to -3.3%, up from -7.3% in June as the container trade has proven to be resilient during the pandemic, Drewry said in its newest forecast.

The latest Container Forecaster report said world container port throughput in the second quarter of the year registered “a far smaller decrease” of around -8% year-on-year as opposed to the 16% drop anticipated in June.

“First half port throughput performance was sufficiently good enough for us to upgrade the annual global forecast for this year to minus 3.3%, up from minus 7.3% as given in June,” said the report published at the end of September.

Container trade resilience during the pandemic rested on high consumer confidence on the back of government support, noted the quarterly analysis and outlook for the container shipping market.

Consumer confidence, e-commerce boom

“We, along with most analysts, seriously under-estimated the addiction of Western nations to consumption, particularly when shielded from some of the harsh reality by huge government safety nets,” said the maritime and shipping consultancy.

“We assumed wrongly that populations, fearing long-term job security, would hunker down and limit non-essential purchases. It discounted the resourcefulness of human spirit when faced with adversity and, perhaps more tellingly, the untapped potential of e-commerce.”

Drewry cited the involuntary savings gained from restrictions to commuting, holidays, entertainment and fuel costs, which were used to purchase consumer goods online.

Physical goods, such as home office and gym equipment, were suddenly back in vogue, a complete reversal of the recent trend favoring services.

On the carriers’ side, capacity management programs also generated some additional traffic. Blanked sailings or suspended services during the second quarter led to more transhipments.

Restocking inventories and fast forwarding some orders due to second wave fears have seen volumes swell on both the East-West trades and North-South corridors, said Drewry.

But the virus is still the number one risk to Drewry’s forecasts, with a second-wave outbreak having the potential to shatter the fragile economic recovery, with consequential impact on global port handling.

The impending end to government support programs could also increase unemployment, reduce household disposable income and dampen consumer purchasing.

Equally, once entertainment activities fully resume there could be less discretionary spending on goods.

“It is also not clear how much frontloading is taking place via stockbuilding, which may be concealing a vacuum of cargo at some future point,” said the report.

Another major risk is regulatory oversight as “posting bumper profits during a pandemic could raise the hackles of cargo owners and draw unwanted attention from regulators,” said Drewry. It noted the industry is now on the watch of China’s Ministry of Transport (MOT) and the US Federal Maritime Commission (FMC).

Profit outlook improves

This year, ocean carriers have controlled capacity more tightly than in previous crises and were able to secure very high load factors, very high rates and lower costs.

Drewry estimates that the container shipping industry secured an operating profit (EBIT) of around US$3.5 billion and margin of 7.7% in the second quarter, “easily the best quarterly performance in many years.”

The third quarter is expected to set an even higher water mark for carrier profitability given the rapid inflation in spot rates during the period, before subsiding a little during a slower fourth quarter season.

Following meteoric third-quarter spot rate increases, Drewry has upgraded its guidance for industry-wide operating profit in 2020 to $11 billion, up from $9.2 billion in June. This would represent the industry’s most profitable year since 2010.

The guidance comes after considering the following:

  • The higher level of concentration of the ocean carrier industry, combined with new, tighter capacity management discipline among carriers
  • Unexpectedly strong demand in North America and Europe, partly on account of replenished inventories
  • A seasonal rush to bring in cargoes before Chinese factories close for the Golden Week holiday at the start of October
  • Limited container inventory stocks in Asia, not helped by service disruptions like blank voyages

 Photo by Kinsey on Unsplash