Home » Breaking News, Maritime » Container shipping feels growing pressure from trade war, falling Asian exports—BIMCO

In the first nine months of the year global container volumes rose 1% to 126.3 million TEUs, up just 1.3 million TEUs from the corresponding level in 2018 when growth was 3.8%, or an additional 4.6 million TEUs, as the effects of the trade war kick in, according to a new report from the Baltic and International Maritime Council (BIMCO).

Since February, volumes between the US and China have been consistently lower than last year. US containerized imports from China in tonnes are down 7.3% in the first nine months of the year, reported BIMCO. Despite the fall in volumes from China, total containerized imports out of Asia are up a slight 1.1% so far this year compared to full-year growth of 6.5% in 2018.

In particular, volumes to the US West Coast (USWC) have suffered, where laden container imports are down 1.5% in the first nine months of the year. Exports have also fallen by 4.2%.

The continued, albeit modest, growth in US imports from the whole of Asia reflects a reshuffling of exporting nations that has occurred in the Far East. This has manifested itself in two ways, said BIMCO.

First, the trade war and added tariffs on goods from China has sped up the ongoing process of some manufacturing moving away from China in favor of its neighbors with lower labor costs.

Second, the trade war has led to products produced in China being transshipped through neighboring countries to change their country of origin and avoid additional tariffs when they arrive in the US.

Despite these developments, volumes on intra-Asian trades are flat in the first nine months of 2019 compared to the same period in 2018. The boost expected from shifting manufacturing and transshipment has not come to the shipping industry, which instead is feeling the pressure from slowing overall exports from the region.

“This may be because transhipped volumes are primarily being transported by land from China into neighbouring countries before being put on a ship,” observed BIMCO.

“Intra-Asian volumes provide an insight into how volumes out of Asia will develop, with lower volumes already putting pressure on freight rates on the major routes.”

It further noted how the overall CCFI fell to its lowest level of the year with a reading of 776.9 on October 18, 2019, although by November 8 it had risen to 808.93.The sub-indexes covering Europe, as well as both the East and West US coasts, where the usual peak season has failed to materialise, have performed particularly poorly.

On these routes, both the CCFI and SCFI are down from where they were at the same time last year, when they were buoyed by the frontloading ahead of the tariffs.

“As evidenced by the falling inventory/sales ratio in the US, retailers there have not been stockpiling to the same extent as they usually do in the lead-up to the Christmas period, causing volumes and freight rates to disappoint,” said the report.

Fleet growth

Meanwhile, fleet growth in container shipping has also slowed in recent years, but not as fast as the slowdown in global container shipping demand. Growth in the container shipping segment now stands at 3.6%, and BIMCO expects full-year growth of 3.7%. Demolitions this year currently stand at 163,219 TEUs.

Taking into account deliveries of 964,064 TEUs, it brings the total containership fleet to 22.9 million TEUs. Of the vessels delivered this year, 27 have a capacity above 14,500 TEUs and, added together, these ultra large container ships (ULCSs) accounted for 544,202 TEUs of the total delivered, or just over 56%.

ULCSs currently make up 60% of the orderbook in volume terms, up from 41.4% in January 2016. In October, a total of 12 ships were ordered: 11 had a capacity of more than 23,500 TEUs, and the 12 a capacity of 1,096. These orders lift the total ULCSs ordered in 2019 to 26 (averaging 18,651 TEUs), considerably lower than the 36 ordered in 2018.

Carriers have announced further blanking of sailings in November which, along with ships heading to yards for scrubber retrofitting, has pushed the idle fleet up in all ship sizes in recent weeks.

“However, despite the continued blanking of sailings, freight rates have not risen substantially as the fundamental balance has continued to deteriorate. This will only hurt carriers, especially as they face the final preparations before the implementation of the 2020 sulphur cap and the battle to pass on higher fuel costs to customers,” said the report.

Although volumes being shipped between the Far East and Europe have remained high—up 4.6% from the same period of 2018—this has done little to lift freight rates. The CCFI index to Europe in October was 10.5% lower in 2019 than in 2018 and, over the same period, the SCFI was down 17.1%.

“The continued deployment of bigger ships, as well as the overall market conditions, mean that even high demand growth on a route cannot single-handedly lift rates on that route,” said BIMCO.

“While bunker adjustment factors (BAFs) have long been around, carriers have developed new formulae to calculate them, and their ability to pass on these extra costs will depend on the conditions of the market.”

“Carriers, competing in a commoditised market, will probably be willing to undercut each other if it means they can sail with more containers onboard. Because of this, cost-cutting will continue to be a focus as fuel costs rise,” predicted BIMCO.

Outlook

The slowdown in demand is showing no signs of easing, and should the latest round of tariffs be implemented on December 15 as planned, virtually all US imports from China will be subject to tariffs, causing further harm to the shipping industry at the same time as costs are increasing due to the IMO 2020 sulfur cap.

“A continued reshuffling in manufacturing in Asia may offer some upside, once processes are up and running. But, as BIMCO has previously said, there are no winners in a trade war, and this is already being felt across the board by shipping in 2019,” said the report.

“The new year will bring not only the sulphur cap, but also skewed exports caused by the Chinese New Year. Pushing out goods ahead of widespread factory closures may bring a boost in January before a slow, and possibly painful, February awaits carriers.”

Image by liggraphy

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