Xeneta, a leading global benchmarking and market intelligence platform for containerised ocean freight, is forecasting further uncertainty for the global container shipping market in 2017.
Though rates have risen significantly from the historic lows of early 2016, giving battered shipowners some reprieve, structural problems continue to undermine stability, while macro-economic and political factors are casting long shadows on the horizon.
Last year was a tumultuous one for carriers, defined by low rates, overcapacity and the subsequent collapse of Hanjin.
However, the final months of the year saw generally higher short-term rates, with the market average price for 40’ containers on the world’s number one trade route – Far East Asia to North American main ports – climbing from a low of US$1164 in April to US$1716 by the close of 2016.
The same rates on the number two route – Far East Asia to North Europe – climbed from lows of US$791 to US$1878 by the end of the year.
“Prices rose from Q3 into Q4 before flattening out a little,” said Xeneta CEO Patrik Berglund.
“But the carriers’ position improved significantly from the dire situation they found themselves in early 2016. That said, it had to.
“With the majority of carriers losing money hand over fist last year, the industry simply wasn’t sustainable. And that’s bad news for shippers, as well as the shipowners, as they need optimal reliability in their supply chain. Stability is what all parties desire – built on a foundation of fair rates – but that still looks elusive as we head into 2017.
“However,” he adds, “profit is still the Holy Grail and all parties need to chase the pennies.
“Whoever achieves the lowest cost base per TEU, while at the same time optimising their agreements on every single transaction, will emerge as the victors in this ultra competitive landscape. A few dollars here and there on every container can add up to millions in profit for the biggest players.”
Mr Berglund said there is still a structural overcapacity of containers-to-cargo, putting carriers in a weak position and creating huge competition for business.
“So it only takes one or two carriers to drop rates and chase market share and, lo and behold, prices fall again. The volatility will return,” he says.
Further uncertainty is provided by an unpredictable economic and geo-political situation, Mr Berglund explains.
“With the looming inauguration of Donald Trump, the continued fallout from the Brexit vote and a rising tide of more ‘insular’ political thinking, the outlook for global trade is, well, interesting,” he notes. “Carriers will be paying close attention to developments.
“At the same time newbuild orders have plummeted and shipyards are seeking to stay in business by offering vessels at not-even-break-even prices. If this entices owners to place orders then we have the prospect of additional overcapacity and further downward pressure on rates. That is not what the sector needs right now.”
Despite these warnings, Berglund maintains the situation has improved for carriers, but that both they and shippers need to stay on their toes.
“As we saw last year, especially with Hanjin, the market can literally transform overnight,” he says.
“While it is looking promising for carriers right now, that can change rapidly, so all parties should try and follow market trends as closely as possible.
“A real-time overview of rates allows for accurate benchmarking against the market, better decision making and negotiations, and greater value services. In such a volatile segment this kind of intelligence isn’t just a nice to have, it’s a must.”