GLOBAL CONTAINER DEMAND

Drewry: Global demand container demand up 5.5% in 2015

While the industry could earn $5 billion this year, some carriers will continue to see losses.

By Chris Dupin |Monday, October 27, 2014  American Shipper

The London-based maritime research and consulting company Drewry said it expects global demand for container shipping to grow about 5.5 percent next year, noting the demand has been stronger this year than forecast earlier.
With higher freight rates on some trades and many carriers driving down costs, Neil Dekker, director of container research at Drewry, said the industry could earn as much as $5 billion this year.
Dekker made his remarks during a webinar last week, highlighting some findings of the company’s recent Container Forecaster report.
“Although to be fair, a lot of the carriers will still be in the red by the end of this year, a lot of carriers are still having problems. And a lot of that profit will really come to some of the market leaders, Maersk in particular and CMA CGM,” he said.
Drewry expects a recovery for the container industry in 2017, but cautioned that will come about not as a result of matching supply and demand, but by adapting to change and reducing costs.
Drewry believes demand this year has grown about 5.2 percent, compared to projections in February and March of about 4.5 percent.
On the Asia to North America trade route, Drewry said volumes have increased significantly since the second quarter and are up through the end of August by 6.5 percent, year-over-year, and in Asia to North Europe trade up about 8.8 percent in the same period.
Dekker said the growth on the Asia-North America trade is up partly because many big shippers have moved cargo significantly earlier because of concerns about a potential work stoppage during the negotiations for a new labor contract between the International Longshore and Warehouse Union and employers.
Trade growth has been very good in the intra-Asia trade, which Dekker said encompasses some 100 routes and is the largest trade region in the world. He said on the trade between China and Southeast Asia, for example, trade is growing at double digit rates. On the other hand, he said volume on routes such as Europe to the East Coast of South America, Asia to the East Coast of South America and trade routes to South Africa have underperformed.
Longer term, Drewry is forecasting annual volume growth of 5-6 percent over the next five years, though it will vary from region to region.
Dekker said the industry will continue to see large amounts of capacity added, including 53 ultra large containerships (ULCS) delivered in 2015 and 45 ULCS to be delivered in 2016. Drewry defines ULCS as those having more than 10,000 TEUs, but he notes many of the ships are much larger, carrying more 13,000-18,000 TEUs.
And more of these big ships may be coming. Dekker said executives at G6 carriers have indicated they may order ULCS and Maersk alone, has indicated it has plans to order about new ships — as much as 425,000 TEUs. If those ships are going to begin coming on line in 2017, “it’s likely the first tranche of those ships will be ordered in the near future.”
There are about 100 ships that are shy of ULCS size, but still very large with about 8,000-10,000 TEU capacity. As the ULCS enter the Asia-Europe trade routes, many of these 8,000-10,000 TEU ships are being redeployed on trades to the U.S. West Coast or the U.S. East Coast via the Suez Canal as well as on the Far East to Middle East trade.
Dekker said that year-to-date average spot freight rates have been higher this year on the Asia-North Europe ($2,488 per FEU versus $2,098 per FEU) and Asia-Mediterranean ($2,892 per FEU versus $2,171 per FEU) trade lanes, but lower on the route from Asia to the U.S. West Coast ($1,932 per FEU versus $2,084 per FEU).
Philip Damas, director of Drewry Supply Chain Advisors, noted, however, that most cargo moves not at spot rates, but under rates negotiated with contracts. Drewry has recently begun offering a service, its “Benchmarking Club,” where it benchmarks contract freight rates for shippers so they can see if they are overpaying when compared to their peers
Drewry found that contract freight rates on major East-West routes fell an average of 6 percent between March and July.
Damas attributed this, in part, to renewal of transpacific contracts at lower cost. He said in some cases, carriers are reducing their own costs and passing on those savings to shippers. He also noted that some shippers are centralizing and running the tenders better, thereby obtaining better rates.
Damas said freight forwarders are gaining market share at the expense of carriers in many markets.
“This is not necessarily because they offer lower rates, but because we hear from the shippers that when they require documentation support or help with bookings or help with supply chain management the freight forwarders offer a much wider range of services," he said.
He also said in some cases large and medium shippers can go direct to the carriers and negotiate lower freight rates, but then “ask the forwarder to provide supplementary services like documentation. So you get the best of both worlds — a direct contract with your carrier and you get support from the forwarders. So we are seeing more companies doing that, having this type of dual arrangement.”