Home » Breaking News, Maritime » Box shipping’s ‘new normal’ demand growth lower than expected, says Bimco

PortNewarkNJTurnpikeContainer shipping posted sluggish volume growth in 2015 that did not translate to higher freight rates, as both box and global gross domestics product (GDP) expansion disappointed, according to the Baltic and International Maritime Council (Bimco).

“Overall, container volumes being moved around the world have grown by an average GDP-to-trade multiplier of just 1.1 since 2010 and we expect this to continue in coming years,” said Bimco in a new analysis. “With IMF expecting GDP growth of 3.4% in 2016, this translates into container demand of 3.54%.”

The “new normal” level of demand is somewhat lower than originally expected—just as global GDP growth keeps disappointing us, added Bimco. From 2000-2008, the GDP-to-trade multiplier stood at 2.2, delivering container demand growth at 8% to 9% from a GDP base of 4% on average.

As for freight rates, these saw lower levels across the board more or less all year, with trading into the U.S. East Coast in the first four months of 2015 being the exception. The China Containerized Freight composite Index, which covers 10 major ports in China and includes long-term contractual rates in addition to spot freight rates, declined 19% in 2015, on average, from the year before. Trades into Europe declined 29% on average, while rates for ships bound for the U.S. West Coast lost 8% on average from the previous year.

In the spot market, the depressing development and the accompanying volatility in 2015 were even more apparent, said Bimco. Spot rates on the Shanghai to Europe trade lost 47% on average from 2014-2015.

Meanwhile, the fundamental imbalance of the containers shipping market worsened in 2015. While the demand side delivered only a sluggish growth level, the supply side jumped by 8.1%.

The year 2015 saw the injection of 208 brand-new ships with a combined transport capacity of 1.67 million TEUs, said the council. This is the “highest supply side capacity expansion ever, including 46 ultra-large containerships (more than 13,870 TEU), 66 feeders (up to 3,000 TEU) and 99 other ships with an average size of 8,160 TEU.”

This year is expected to bring around only 850,000 TEUs of new capacity, but Bimco points out that all fleet growth will happen in the size-segments larger than 8,000 TEUs. The postponement by owners and investors of the original agreed delivery dates will help. Over the past year, Bimco estimates that the postponement rate of orderbook has gone up from 15% to 30% with most of the work done in the first half of 2015.

“2015 saw a total of 2.1 million TEU of newbuild capacity being ordered. 2016 will see a lower level,” it said.

Towards the end of 2015, the amount of idle capacity climbed to 1.36 million TEUs, only to go down again on the expectation that transport demand would go up prior to the Chinese New Year.

As for the permanent reduction of capacity, 2015 was not an upbeat year. Some 90 ships were sold for demolition, two-thirds being ships smaller than 3,000 TEUs, for a total of 193,156 TEUs.

Bimco thinks that the lower bunker costs are very welcome to an industry struggling to make a profit. “The lower fuel price, however, may not be such a blessing, as some may have forgotten that slow-steaming originally was a way to deploy more ships without increasing capacity on the strings.”

According to SeaIntel, deployed capacity in Asia to North European trades was down by 0.43% in 2015 from the previous year. “For freight rates to rise, a return in demand is not enough, we need the supply side to support the fundamental balance too,” said Bimco.

But it added that export volumes will rise again only past the Chinese New Year celebrations in February 8, 2016, while European retailers and wholesalers can help by stopping the running down of inventories and starting to import containerized goods on a large scale again.

“The ongoing declining value of the Chinese Yuan against the US dollar may inspire some to go back to its Chinese suppliers for goods. Private consumption in Europe has been steady over the past year so eventually demand should come back. At what level and what time remains uncertain. What remains certain is ‘the sooner the better.'”

Bimco expects imports in the U.S. to present an upside to the industry as the economy is constantly improving and demand from the consumer is very solid.

Photo: Doc Searls

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