Shadow of recession adds to carrier woes as rates fall after Chinese holiday
As anticipated, container spot rates softened across the major deepsea trades following the Chinese New ...
Despite continuing soft container spot rates after the two-week Chinese New Year trade hiatus, ocean carriers remain bullish on the prospects of the deepsea trades in 2018.
Graham Slack, Maersk Group chief economist, told delegates at last week’s TPM event in Long Beach that, following a strong 2017, he believed supply-demand fundamentals this year would improve.
However, he also claimed that shippers and carriers needed to move away from simply analysing demand and supply when it came to negotiating long-term contracts.
“The whole discussion around demand and supply is important to customers from a cost perspective, but it is unclear how it actually helps. Very low rates have destroyed economic value and carrier responses, such as slow-steaming, have forced customers to carry more inventory.
“In short, we have concentrated too much on rate levels and not enough on service, and in this respect I think the industry is on the verge of a major change.
“We have to completely rework the products and services we provide, and for this we need collaboration,” he said.
This view comes despite the fact that carriers believe they are in the driving seat as annual contract negotiations on the transpacific trade get underway.
“Global container growth in 2017 was 5.6%, which made it the best year since 2011 and, compared with 2015 and 2016, was particularly good,” Mr Slack said, and argued that a further expansion in volumes was likely, due to three key factors.
“Supporting the 5.6% growth was an expansion of the GDP-trade multiplier last year to nearly 2x from 0.4x in 2015.
He acknowledged that there had been much debate among analysts on the changing GDP-trade volume ratio, and admitted that the recent surge may be temporary:
“The IMF has suggested that the ratio rebound was temporary, and to some extent the figures support this view.”
Secondly, the demand growth last year was seen across all regions: North America saw volumes increase 8.2%, while Latin America and Africa growth was recorded at 9% and 7.4% respectively.
He accepted that there had been some slowing of growth in recent months, but argued that had been seen in ocean and air cargo segments, as well as at ports, and “this shouldn’t come as a surprise as the recovery started in the last quarter of 2016 and this provided a very strong comparison base”.
Finally, industrial growth is likely to spur further container volume growth.
“In the short term, global manufacturing is strong and there is momentum for strong container demand over the next three-to-six months.
“Over the long term, capex in industry was 4% in 2017 and we estimate this will rise to 4.3% in 2018.
“The IMF estimates that capex is the biggest single influence on trade volumes, and the spread of growth forecasts puts global container volumes growing by 4-5% in 2018-2019. At Maersk, we are predicting a more conservative 3-4%,” he said.
The caveat of course is what happens with supply – Alphaliner recently predicted that capacity would increase by 8% on the transpacific this year, but Mr Slack argues it is more important to gauge headhaul capacity
“In 2017, demand on headhaul trades outstripped nominal supply by almost 3% and kept pace with effective supply increases until the fourth quarter. Compare this with 2015, when there was a 3.5% gap between supply and demand. So as we move toward 2019, the fundamentals are quite supportive.
“There was a very low idle fleet as we came into 2018, and the orderbook is 13% of existing capacity, which is less than half of what it was in 2011,” he said.