CONTAINER LINES & SUPPLY CHAINS

Here is more to show that the future for ocean container lines will continue to be difficult.  This can translate into fewer carriers in business---and fewer options to use for supply chain management.






Lender offers downbeat outlook for container shipping

Thursday, May 29, 2014

By Chris Dupin

   Danmarks Skibskredit (Danish Ship Finance) says in its most recent Shipping Market Review that there continues to be a “massive” surplus in the supply of containerships, particularly large vessels.
   In 2013, it said, the nominal supply surplus widened by 4 percentage points, and average container rates fell 8 percent. It added, “Shipowners made several attempts to artificially increase box rates in 2013, but without much success. The already depressed timecharter market remained under pressure."
   Looking forward, it said, “The size of the current orderbook leaves no immediate hope for an improvement of the supply and demand balance in 2014 and beyond. Even though demand is expected to pick up, we believe that the container market is in for a more prolonged recovery process."
   The lender explained, though, that scrapping of capacity in Panamax lanes has lead to a rosier outlook in some cases. "However," it said, "the outlook for the Post-Panamax segment remains highly challenging, as the fleet is too young to provide an adequate number of scrapping candidates. Supply remains several years ahead of demand — and there are more vessels to come.”
   It called the outlook for the post-Panamax market "bleak" because it is a young fleet with an orderbook at 36 percent of the fleet. As far as outlook, there is low growth potential in both emerging and established economies, the lender said.
   The lender's report found little chance of increased demand coming to the rescue of the container-shipping market.
   “Structural issues related to high unemployment, low investment, persistent output gaps, tight credits, and large levels of debt constrain the future growth outlook for container demand. Moreover, unlike other ship segments, we see little possibilities for new major trade lanes to emerge because the incremental growth of container trade is so meticulously linked to global GDP in general and national GDP in particular," it said.
   Danish Ship Finance, which lends to both Danish and non-Danish shipowners and has first mortgages in approximately 560 vessels, allowed that box rates are still high despite the outlook, but that this will likely change.
   "However," it added, "the last few years have shown that box rates can be maintained at high, albeit volatile, levels despite a significant supply surplus.
   “Time-charter rates are expected to remain low, and the number of vessels idle or laid up is expected to increase. Consequently, tonnage providers and owners with older and less-efficient vessels will continue to suffer," the lender continued. "Post-Panamax secondhand values are expected to decouple from newbuilding prices. Secondhand prices have already started to reflect the fact that some sizes, ship designs and engine types are more suitable for the future market than others. But the issue to consider for future secondhand prices is how and when the market will factor in that many vessels are eventually expected to be scrapped prematurely. We expect to see extraordinary value depreciations