Current ocean freight recovery may not be sustained

09/11/2020

Buque De Carga, Carguero, Savannah

Source: lloydsloadinglist.com

The current boom in volumes, particularly on the transpacific, could be masking what may turn out to be a long and slow recovery for the container sector.

“The container shipping industry is particularly vulnerable to changes in consumer spending, which has been severely impacted by lockdowns across the world,” BIMCO chief shipping analyst Peter Sand said in his latest outlook for the sector.

While volumes were hit hardest in April and May, in line with the strict lockdowns in place at the time, over the first half of the year liftings were down 6.9%.

“Though volumes have started to recover, actual demand for goods is still considerably down,” Mr Sand said. “The high rates are testament to shippers again frontloading their goods, this time ahead of a potential second wave of coronavirus around the world and resulting lockdowns.”

While frontloading occurred ahead of an increase in tariffs because of the trade war in 2018, total retail sales in the US, excluding food and beverages, were down 1.3% in the first six months of this year and there the risks of higher unemployment and lower consumer incomes are looming as governments unwind state support programmes.

Grúa De Pórtico Para Envases, Contenedor

“Even the higher state support was unable to stop consumer spending falling in the major consuming nations of the world, and, as this comes to an end, spending is likely to suffer even more, lowering demand for container shipping,” Mr Sand said.

“The effects of this lower actual demand on container shipping will be more painful given the frontloading that we are currently seeing, which will depress volumes and freight rates in the future.”

BIMCO said while new housing starts in the US, a signal of economic confidence, were higher than they were a few months ago, they still remained 4.5% below where they were in February this year.

Despite capacity now being close to or above last year’s levels, and although demand remains low, container freight rates remained resilient, which had helped carriers to the achieve their most profitable second quarter results since 2010.

“Across the board, major carriers have announced strong results for the first half of the year, despite volumes falling,” Mr Sand said. “This has so far been achieved by the stable freight rates and the cost savings from cheaper bunkers, blanking sailings, and returning ships to tonnage providers.”

Buque, Contenedor, Elba, Marinero

But capacity management had been the key to success and as capacity is reinstated without a permanent recovery in demand, carriers would find themselves balancing on a “thin tightrope” between maintaining market share and freight rates.

This would happen while the fundamental balance in the market deteriorated as the fleet grew by 2% and demand falls, said Mr Sand.

“BIMCO expects freight rates to fall in the near future unless capacity adjustments are constantly made to rebalance the market.”

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