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Path Naija News » News » Drewry: 2020 Is Another Challenging Year For Container Shipping

Drewry: 2020 Is Another Challenging Year For Container Shipping

Akanimo Sampson by Akanimo Sampson
January 14, 2020
in News
Reading Time: 3 mins read
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Drewry, a leading independent provider of research and consulting services to the maritime and shipping industry, employing over 100 professionals, has said that the container industry is now battle-hardened to cope with yet another challenging and unpredictable year ahead.

According to it, much like last year, carriers should be able to return solid, if unspectacular results and continue to prepare the ground for a better future.

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Insisting, it said, this 2020 will be yet another challenging one for the container industry in terms of capacity management, but they will cope.

The year raises the usual questions about how carriers will handle the introduction of big new ships and their impact on the industry’s precarious supply-demand balance. The unadjusted orderbook calls for an extra 1.2 million teu to be added to the fleet in 2020, of which 532,000 teu is comprised of 23 Ultra Large Container Vessels (ULCV), all for HMM (soon of THE Alliance), CMA CGM (Ocean Alliance) and MSC (2M).

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The current delivery schedules for the new ULCVs are spread evenly through 2020, which should make their integration a little easier than if they arrived en masse. What would lighten the load is if some of those scheduled for an end-year delivery were to slip into 2021 delivery slots, which based on past history is entirely possible.

Even if some of the big newbuilds don’t arrive next year as planned there will be a significant amount of new capacity entering the market.

However, that could have been said in most recent years and despite the standard early-year fears of a capacity glut that will flood the market and depress rates, the reality is that lines are very adept at switching capacity around and hiding it when necessary.

A tried and tested method of removing unwanted capacity is void sailings, of which Drewry counted 253 in the East-West lanes alone during 2019 (December’s tally being a preliminary estimate); a significant increase on the 145 cases in 2018.

A large number of scrubber retrofits will also assist. As of late December 2019, there were still some 260 units with an aggregated capacity of nearly 2.4 million teu pending retrofits so the idle fleet will continue to remain high for a few more months at least, while reported yard delays will keep ships out of service for longer than expected.

Therefore, while Drewry acknowledges that capacity management will continue to be challenging this year we don’t believe the current delivery schedule is anything that lines will not be able to cope with.

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Drewry’s global supply-demand index (adjusted for idle fleet), from the recently published Container Forecaster report, calls for a tiny decrease of 0.4 points to 90.6 in 2020. Keeping in mind that any index reading below 100 represents overcapacity, the forecast highlights just how far carriers have to go to compensate for the industry’s structural overcapacity and reach a comfortable balance that will promote sustainable freight rate gains.

We expect the market to continue in much the same manner as it did last year; lines will remain price-takers as the supply-demand fundamentals will work against them, although they will be able to remain profitable so long as operating costs are kept in check. It will be a tightrope act and the capacity levers of idling and void sailings will be pulled frequently.

Looking beyond 2020, carriers’ best hope to reverse this course is to be much more ruthless on demolitions and to remain restrained when it comes to ordering new tonnage. The biggest risk to the latter is a significant government influence within some Asia-based carriers that could force politically-driven rather than commercially-driven investment decisions.

Uncertainty regarding the best option to help the industry achieve its carbon-neutral goals could help with the rebalancing process. Deciding on the most suitable ship propulsion alternative will understandably take time and the longer carrier executives take to consider and delay investment in new ships, the more time the industry will have to reduce its capacity surplus.

Drewry maintains the view that new orders will be constrained by these major factors: Existing structural overcapacity, Uncertainty over future environmental regulations and compliant vessel fuels, and New carrier strategies directing capex focus away from ships and towards IT and logistics

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Tags: Container ShippingDrewryglobal supply-demand indexULCV

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