The container shipping industry will have to ride out a bumpy period amid an anticipated seasonal decline in volumes spilling into the first quarter of next year and growing supply of ships.
According to BIMCO, handling this will be a recurring seasonal challenge.
“Bearing in mind that freight rates are still dropping in mid-October, so striking the right balance must be a priority to stop declining profits. The rates on key trades have once again become so low that any profits have evaporated,” BIMCO said in its outlook for the sector.
The average spot rates for US and Europe bound routes have dropped by 22% since the end of July.
As highlighted, despite brisk demand spot rates have fallen significantly as liner companies ‘test’ the strength of the market by deploying tonnage into the trades until the freight rates drop.
“Only by doing that, can they reveal the true strength of demand. Despite running regular service cuts around Chinese Golden week in early October, an event which brings down demand – freight rates kept falling,” BIMCO said.
During the months of May through to September, the idle fleet dropped further to reach 495,000 TEU by October 2, 2017.
“Now that we are entering the winter season where the transported volumes always go down from Q3, the management of deployed capacity on individual trades and throughout the entire network will be essential to limit losses,” BIMCO highlighted.
Overcapacity is expected to remain an industry challenge for years to come and keeping sailing speeds at present levels will be critical for the recovery to stay on track.
On the supply side, it has been a steady year in terms of newbuild deliveries into the container shipping fleet, with 898,000 TEU delivered in the first nine months of the year. BIMCO expects 1.1 million TEU to be delivered for the full year. This is more than the 905,000 TEU that was delivered in 2016, but it is likely to be on a par with 2018-
With regard to demolition, during the nine-month period, some 356,000 TEU was sold to shipbreakers.
As opposed to 2016, the demolished ships have become older again (up from 19 to 21 years on average) and they have become smaller in size.
2016: Average size 3,373 TEU – Average year built 1997 (19 years old)
2017: Average size 2,891 TEU – Average year built 1996 (21 years old).
In total, this brings BIMCO’s fleet growth forecast for 2017 to 3.3%.