Container volume growth absorbed by existing fleet
Greater utilization on existing vessels appears to have absorbed the 4 percent growth in global container volumes during the fourth quarter of 2016, with the rising box numbers not translating into increased demand for container ships, according to Alphaliner.
The analyst said that even though the last quarter container growth rate was the highest quarterly growth recorded since 2014, the global demand for container ships had fallen in tandem with the fall in supply growth.
The idle fleet reached a peak of 1.59 million twenty-foot-equivalent units in October last year, but average demand in the fourth quarter of 2016 dropped to 0.6 percent compared with supply growth of 2.2 percent. Alphaliner said as carriers continued to remove capacity during the year, the supply of vessels dropped quarter by quarter from a growth of 7.9 percent in the first three months of last year to the 2.2 percent growth in the last three months.
However, much of the fourth quarter demand can be traced to the collapse of Hanjin Shipping, South Korea’s biggest carrier that went into receivership on Sept. 1, 2016 after losing the support of its banks. Hanjin Shipping will be officially declared bankrupt by a Seoul court on Feb. 17, closing the book on the largest ever container line failure.
Alphaliner said the removal of Hanjin’s capacity of 617,000 TEUs at the beginning of September was mostly not replaced, which helped boost liftings of the incumbent carriers. The analyst said in addition to that, part of the reason for the higher demand in the fourth quarter could be attributed to the one-time effect of clearing the cargo stranded on Hanjin ships and bookings that were re-directed to other carriers during that period.
This “Hanjin bounce” was driven by shocked shippers fleeing to so-called “safe haven” carriers that were believed to be more financially secure, such as Orient Overseas Container Line and Maersk Line. Although OOCL has not yet announced its full annual results, the Hong Kong-based carrier’s operational update for 2016 showed that trans-Pacific volume in the fourth quarter increased by 30.6 percent to 439,620 TEUs, and Asia-Europe volumes grew 28 percent to 264,410 TEUs.
Maersk Line’s east-west volumes in the fourth quarter were up 12 percent, with headhaul ship utilization at 92 percent and round-trip utilization at 70 percent for the last three months.
The World Trade Organization’s latest World Trade Outlook Indicator suggests global trade growth will continue to build moderately in the first quarter of 2017 after having strengthened in the final quarter of last year. Trade-related indicators including air freight, automobile sales, export orders, and container shipping all registered solid gains in recent months, and the WTO said this could be a sign of faster growth in merchandise trade volumes in the first few months of the year.
An improvement in the supply-demand balance has led to optimistic statements from carrier executives. Mediterranean Shipping Co. CEO Diego Aponte told JOC.com that the container shipping industry was “on the right track,” and that the unprecedented consolidation during 2016, and the Hanjin collapse, would create more rational behavior from carriers. He said that although there was a severe overcapacity problem, the industry was on a path to emerge from it.
Maersk Group CEO Soren Skou said he believed the industry had reached an inflection point and is expecting a major turnaround in the carrier’s profitability this year. He said rising container rates would see the liner division recording an improvement in excess of $1 billion in underlying profit compared with a 2016 loss of $376 million.
But Alphaliner said Maersk’s optimistic assessment contrasted with tentative forecasts by other industry players. The analyst pointed out that Hutchison Port Holdings Trust had cautioned that container volume growth in 2017 remained uncertain owing to the “policy stance of the new US administration” and the “continued weak consumer sentiment and high unemployment rate” in Europe that could hinder the pickup of the European trade.
“Much of the hope for improved carrier earnings this year now rests on a reduction of global container ship capacity, with record high scrapping and delays in the delivery of new ships helping to bring down supply growth,” Alphaliner said.
Carriers tightly managed their capacity in the fourth quarter of 2016 and Pierre Danet, chief financial officer for Maersk Line, said this would continue in 2017. As part of that management, the carrier will delay the delivery of nine 14,000-TEU vessels. The vessels will be delivered with delays between one month and one year, and the last vessel will be delivered at the end of 2018, a year late.
Deep capacity cuts have also been made by carriers to better match supply with demand, and SeaIntel Maritime Analysis CEO and partner Alan Murphy described the blanked sailings as being at their highest level in four years.