Container shipping freight rates may improve in 2016

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Freight rates for the global container shipping market is forecast to improve slightly in 2016 compared to last year, thanks to demand and supply potentially growing at approximately the same pace, according to Bimco.

The US and European markets have been growing while Japan’s economy is improving, giving rise to the hope that demand will be strong enough to fend off the inflow of new vessel tonnage, said Peter Sand, chief shipping analyst at Bimco.

“Overall we will see a more balanced development in the container shipping market this year, so freight rates should be slightly firmer compared to last year,” Sand told Seatrade Maritime News.

On the supply side, 2016 is projected to see around 850,000 teu of new capacity, compared to 1.6m teu added in 2015. On shipping demand, Bimco expects imports in the US and steady private consumption in Europe to lend support to the boxship market. The ongoing declining value of the Chinese renminbi against the US dollar may also inspire some enterprises to go back to Chinese suppliers for goods.

The segment for smaller ship sizes of just below 3,000 teu up to 5,000 teu, in particular, is expected to see a modest increase in time-charter rates due mainly to the segment’s more active demolition activities.

But not all trades would be seeing positive prospects this year. The Asia to South America and Africa trades are “awashed with capacity due to the cascading effect” of larger ships being deployed on the main Asia-Europe and transpacific trades.

The emerging markets of South Africa and West Africa have been developing rapidly, and owners and operators “seem to be getting ahead of themselves as they are supplying the markets with too many big ships too early”, according to Sand. He lamented that even though there is demand growth in those trades, the capacity introduced has outstripped the demand, leading to downward pressure on rates.

While the outlook for container shipping is not too all gloomy, the market is delicate and facing a ‘new new normal’ of declining outsourcing activity, which impacts seaborne trade, Sand noted. Even as globalisation remains a positive trend, European and American manufacturers are practising nearshoring as they bring production closer to their neighbouring region, thereby slicing away part of the need to engage seaborne transportation.

The nearshoring inclination has also led to a falling GDP-to-trade multiplier. Since 2010, container volumes moved globally have grown by an average of GDP-to-trade multiplier of just 1.1 and Bimco expects this to continue in the coming years.

With IMF expecting GDP growth of 3.4% in 2016, this translates into container demand of 3.5-4%, compared to 2000-2008 when GDP-to-trade multiplier stood at 2.2, delivering container demand growth at 8-9% from a GDP base of 4% on average.

In summing up, Sand said: “In order to bring the entire container shipping back on the recovery track, you need growth on the high volume trades. But if bigger ships cannot get the volume or get filled up, the cascading effect will then harm the minor trades.”

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