Despite an apparent recovery in the container shipping industry as seen in higher spot rates and shipping company share prices, there remain parallel, divergent narratives as to how strong the market truly is.
Several observers, analysts and carriers are convinced the market is recovering off an extremely weak 2016; trans-Paciﬁc spot rates are up more than 50 percent since early December.
The massive industry consolidation initiated in 2016, which will eliminate seven of the top 20 carriers, has led many to believe that carriers will have a better shot at higher rates this year after a disastrous 2016 when contract and spot rates hit record lows and carriers collectively lost billions.
“The latest read on key indicators such as freight rates, ordering activity, idle capacity management, scrapping, and charter rates suggest stable to improving trends, which bode well for sector earnings,” JP Morgan wrote in a Feb. 2 research note.
“I do feel that in 2016 we found the bottom,” Dave Arsenault, the former US president and CEO of Hyundai Merchant Marine and now a consultant stated recently. “Last year, you had overcapacity and completely crazy pricing.
This year, you will still have overcapacity, but pricing will be more realistic,” states Philip Damas, director of Drewry Supply Chain Advisors. He said that in trans-Paciﬁc annual tenders with which Drewry is assisting beneﬁcial cargo owners, “we’re seeing rate increases of 40 percent.
“If you were a BCO last year you were a hero because you secured huge reductions in your freight. This year it is going to be a lot harder to be a hero in your organization as a BCO,” Damas said.
But others remain skeptical, citing multiple mega-ship deliveries yet to occur and at least two years of overcapacity still likely remaining in the market, despite much higher levels of scrapping last year and returns of unneeded chartered tonnage to owners.
So obviously with this there will surely be some optimism on the part of the carriers. But the days of destructive rate competition are not over. One view is we are still in the midst of a major battle within the container shipping market.
The relative calm that we are seeing right now was really the result of the Hanjin bonus, because the removal of Hanjin really helped the rest of the market,” he said.
The ﬁght for market share is going to continue, there is still a signiﬁcant amount of new vessel supply that is coming into the market over the next two years seen to continue for too long.
Vigorous competition among carriers could therefore still be seen in the trans-Paciﬁc this year at rates that have adequate returns when there is an uncertainty about what it is that they are really going to be selling.
Carriers are forced to sell based on price and therein continues the problem of lower rates that are not sustainable which can ultimately lead to further consolidation. Please notify to your vendors to place booking as early as possible. Thanks !