Thematic Route

For the container ship market, 2019 will face great uncertainty. The additional costs brought about by the sulfur cap order and the supply and demand balance issues resulting from the delivery of a large number of newly built large container ships all mean that 2019 is a challenging year.

Drewry, a shipping consultancy, said recently that the container shipping industry is facing extremely high uncertainty among many unfavorable factors, and this level of uncertainty may be the highest in a decade. The scope of uncertainty includes the additional costs associated with the IMO 2020 sulfur emission regulations, the compensation that operators receive from shippers, the possibility of a trade recession, and the unknown participants in large shipbuilding plans.

The latest data released by Container Trade Statistics (CTS), a container shipping data provider, shows that the global container volume decreased by approximately 2.1% in the first two months of 2019 compared with the same period last year. Except for the European market, multiple markets showed declines to varying degrees. CTS believes that the reduction in cargo volume cannot be explained merely by the impact of the Sino-US trade war, as the decline in cargo volume is "global".

Maersk Line's CEO, Szogren, previously stated that the growth rate of demand in the container shipping industry this year is only 1-3%. However, unlike Maersk, Rolf Habben Jansen, the CEO of Hapag-Lloyd, is optimistic and expects the growth rate of global container shipping demand to be 4.1-4.7% this year and 4.9% in 2020.

Judging from the data of the previous two months, Schsongren's prediction might be relatively accurate. The World Trade Organization (WTO) has recently lowered its forecast for global economic growth from 3.7% to 2.6%, sending out a pessimistic signal.

In the five-year forecast of Container Forecaster magazine in London, it is expected that the container port throughput in each region will increase every year, although the growth rate is slightly lower than Delury's previous expectation. Furthermore, by 2023, supply growth is expected to be lower than demand growth, which will help to continuously strive to rebalance the oversupplied market. Drewry predicts that in 2023, the industry will approach equilibrium, with the global supply and demand index reaching 97.1.

Simon Heaney, senior manager of Container research at Drewry and editor of Container Forecaster, said: "Our analysis clearly shows that operators must increase the fuel return rate; otherwise, there will be serious consequences."

What gives us confidence for tomorrow is that despite the weak fundamentals of supply and demand, operators managed to achieve slightly higher freight rates last year, proving their ability to exert a greater degree of pricing power. We expect that the International Maritime Organization will increase the fuel cost of this industry by about 50% in 2020, which will help maintain the normal operation of operators.

Dreyry predicts that shippers will strongly reject the new fuel surcharge formula, but due to the broader acceptance of responsibility sharing in the market and the fact that shipping companies have been negotiating solutions with shippers for a long time, operators may be more successful than in the past and have time to solve any initial problems.

Most shippers admit that they have to pay more, but they have reason to expect that any increase will have a credible and reliable mechanism. In other words, the initiative lies in the hands of the operators. Heaney said.

(Source: International Ship Network)