What we all seem to want is stable and sustainable economic growth within which to build our business, but what we are getting at the moment is recurrent minor shocks that shake our confidence and prohibit us from moving forward fast. After 2006, more and more shipping companies start to build the ship with large capacity because the demand for the space of shipping industry is rapidly increased, especially the space of container. However, with the suddenly impact of financial tsunami in 2008, the demand for cargo shipping crushed, also the ocean freights went down due to the irrational price war. Until now, most of the shipping companies are still hard to gain profit.
Let’s have a look for the market situation in the past three years.
2.1. Demand Side in 2012
James Hatfield may have had container line operators in mind when writing: “Waiting for the one – the day that never comes – when you stand up and feel the warmth – but the sunshine never comes”. As it appears to be a spot-on comment to the poor peak season in container shipping 2012, reflecting very illustratively the positive sentiment in global economics and container shipping that turned sour over the summer following a very strong start of the year.
There is room for some optimism in the container ship business, as witnessed by the number of loaded containers going into the ports on the US West Coast. Here, demand increased by 1.7%
during 2012, more than making up for the fall in demand in 2011. This uplifting result was achieved in spite of a strike, which heavily affected imports into the port of Los Angeles in November and December. As a result of this strike, the containers expected to arrive in late November were delivered in December, explaining much of the discrepancy between the two months. Estimates from Container Trade Statistics show that the full-year numbers for 2012 on the Asia-Europe trades could fall by 500,000 TEU as compared to 2011. This is very much due
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to weak demand from Europe as such and Southern Europe in particular.
Figure 6: Shanghai Containerized Freight Index 2010-2012
2.2. Supply Side in 2012
The container ship fleet has grown by 5.9% until now and remains on course for a full year fleet expansion of 7.2%. Container ship demolition has stayed very strong throughout the year, up from the very low level at 77,000 TEU in 2011 to touch 300,000 TEU this year. It is equally important that the demolition of larger sizes has started, with 27% of the recycled tonnage having a capacity exceeding 3,000 TEU. The elevated recycling activity, as compared to the steady pace of new deliveries, has meant that the number of vessels in the fleet has actually gone down during the past two months. Meanwhile, 15 new contracts for +9,000 TEU vessels and 7 for medium sized vessels were done. This made the order book stand still at 3.5 million TEU (22% of active fleet).
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Figure 7: Container Supply Growth 2012
2.3. Demand Side in 2013
On a global scale, containerized export data from CTS, shows that activity improved in May following a weak start to 2013. Since then, the pace has picked up, and November and December saw 5-7% growth rates from same months of last year. As total imports into Europe have been growing even more strongly, it does explain why traceable freight rates from Shanghai to Europe went up sharply in October and December. In the meantime, freight rates on US bound boxes have been very steady. As in the past years, demand has grown quickest on the intra-Asia trades. This trend continues, despite the lowering of the IMF’s GDP-growth expectations for Emerging and developing economies.
The US economy is the key driver for global growth in container shipping. In the Macro Economic section, it was mentioned that the US economy was going through a positive development. To look at bit deeper into that, traffic development in US ports is very interesting.
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The inbound loaded traffic on the US Atlantic coast remained almost unchanged this December compared to last year. Unfortunately, ports in the US Gulf were not so lucky. Compared to December last year, the US Gulf Coast ports saw a drop in inbound loaded traffic of more than 5%.
Figure 8: Shanghai Containerized Freight Index 2013-2014
2.4. Supply Side in 2013
The pace of new-building orders placed for box ships in 2013 has been strong too, with 1.69 million TEU contracted (2012: 0.4 million TEU). The orders are following the same pattern as seen in recent years. 52% of the new capacity contracted during 2013 is for Ultra Large Containerships (ULCS), with 35% placed in the 8,000-9,999 TEU range. This leaves 13% for sub- 8,000 TEU contracts. The fleet is being heavily skewed towards the bigger sizes, as investors seek to lower unit costs, reap the benefits of economies of scale and by that, improve competitiveness. The future is set for slow steaming and larger volumes on each ship, but
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profitability for the operators will depend on utilization. With a charter market in the respirator, it is important to notice that all of new orders for ULCSs come with a charter party attached.
The orderbook data in total mirrors the aforementioned trend, with 81% of the capacity of the orderbook being in the Post-Panamax 8,000 TEU size.
The inflow of new tonnage in 2013 remains on target to become the second largest on record, but most importantly, demolition activity is already at all-time high level, with more to come.
Fleet expansion around 5.9% is set to become the new standard level of supply growth.
Figure 9: Container Supply Growth 2013
2.5. Demand Side in 2014
The peak season of the year also saw the greatest volatility of the year. Following the steady freight rate development on the Far East to Europe route up until September. Demand from Europe appears to be more of a restocking issue than a 100% consumer-driven revival.
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Regardless of its origin, volume growth has been impressive. According to CTS, European box imports were up by 8% y-o-y in the first nine months of 2014. Since Asian imports from Europe went up by just 0.2% in the same period, the imbalance between front haul and backhaul has widened again, reversing the recent trend of stronger backhaul growth. Asian exports to all US destinations have grown by 5.6% in total. In spite of the conflict, US West Coast ports handled an increasing number of loaded inbound containers in 2014 (+3.8%). The trade in 2014 was much stronger though on the US East Coast (+10.6%), with strong numbers seen throughout the year. The West Coast congestion did not relocate volumes from West to East much. The stable freight rate trend in the first part of 2014 on the Far East to Europe trading lane collapsed when the peak season got underway.
Figure 10: Shanghai Containerized Freight Index 2014-2015
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2.6. Supply Side in 2014
Now leads to an increase in the overall supply growth estimate, as the demolition amount is unlikely to exceed 400,000 TEU, thus bringing the net change to the fleet stock to a three-year high at 6.2%. One hundred and eighty six new ships have been delivered, giving us the second largest delivery year on record in 2014; second only to the bumper year of 2008, that saw 1.5 million TEU introduced.
New contracting for the year to date is now at 853,000 TEU, the aggressive new ordering of 29 ships in September is now behind us, with only five ships of 1,800-1,900 TEU being ordered during October and November. The total fleet size passed the 18 million TEU-mark in November and is now heading for a 19 million TEU-mark in approximately eleven months’
time.
Figure 11: Container supply growth 2014
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2.7. Market Summary
According to above market situation from 2012-2014, you can find out the demand side was going up and down sharply because of the weak economics in Europe and unstable needed in the US. Also China- the biggest market in Asia was facing the difficulty to keep at least 8% of growth rate. Even the supply side is increasing every year. Without the strong demand, the carriers are still hard to gain profit.