New alliances, structural change and positive economic trends have transformed the container shipping market over the past year, driving growth and pushing business performance figures from deep red into black. However, despite long-term rates that are, in some cases, up 120 per cent year-on-year, the future remains uncertain due to a looming shadow on the horizon. And, according to Xeneta, it is not being cast by the ‘usual suspect’.

 

New alliances, structural change and positive economic trends have transformed the container shipping market over the past year, driving growth and pushing business performance figures from deep red into black. However, despite long-term rates that are, in some cases, up 120 per cent year-on-year, the future remains uncertain due to a looming shadow on the horizon. And, according to Xeneta, it is not being cast by the ‘usual suspect’.

 

The leading global benchmarking and market intelligence platform for containerised ocean freight says that a recovery of the container segment is well underway. From a 2016 that saw the collapse of Hanjin and the top 20 market players posting combined net losses of US$5bn according to the Wall Street Journal, 2017 is shaping up to be a bumper year.

 

Rate jump despite Trump

 

“Maersk’s recent 2017 Q2 financial report provides an interesting snapshot of the industry,” notes Xeneta’s CEO, Patrik Berglund. “Higher freight rates propelled revenues upwards by 8.4 per cent to almost US$10bn for the quarter. Meanwhile, reports suggest that Hapag-Lloyd will triple its earnings this year.

 

“Rates have jumped since their historical lows last year. For the Chinese main port to Northern Europe route last May, the three-month rolling average for long-term rates for a 40-foot container stood at US$655. This May it was US$1,438 – an increase of 120 per cent, and the same average is now up at US$1,618. Meanwhile we see US containerised ports are busier than ever, handling a projected 1.75 million TEU this month (Global Port Tracker) alone – the most on record. This comes despite the uncertainty caused by President Trump’s ‘America First’ doctrine and his withdrawal from initiatives like the Trans-Pacific Partnership. US container imports actually seem to be growing.”

 

Sabotaging its own success

 

Strong consumer demand, the restructuring of industry alliances – 90 per cent of all container ship traffic is now accounted for by three major alliances (THE Alliance, OCEAN and 2M) – and Hanjin’s demise all help push up utilisation and rates, but uncertainty nonetheless remains. Moreover, as Xeneta’s CEO points out, the industry may unwittingly be about to sabotage its own success.

 

“We remain optimistic with regards to the remainder of 2017, but the longer term becomes more complex,” argued Mr Berglund, pointing to one “huge issue” – the increase in mega-ship capacity.

 

“A staggering 78 new mega-ships are due to come online for the Asia-Europe trades over the next two years, pushing capacity up by over 23 per cent,” he commented. “Mega-ships make obvious sense in terms of economy of scale and optimising transport costs, but when you have this much of a capacity injection it requires a huge demand increase… and, well, where will that come from?

 

“Mega-ships of 18,000 TEU need to command utilisation rates of at least 91 per cent to achieve cost savings. Even in the high-volume Asia-Europe trades that is difficult and may necessitate lower-than-average rates for some volume, which, inevitably, will hit overall rate development.

 

“A potential mega-problem”

 

“Each of the key alliance partners is playing catch-up with one another, trying to reap the mega-ship benefits. In doing so they’re going to flood the market with new capacity and risk reversing current positive trends. This is a potential mega-problem in waiting.”

 

Mr Berglund said that all stakeholders in the container shipping supply chain must pay close attention to the market in order to stay ahead of developments and get the best rates for their assets, services and cargoes.

 

“Platforms such as Xeneta, which crowd-sources real-time global shipping data from major international businesses to give users unparalleled insight, remain the most effective way of doing this,” he said. “By benchmarking accurately against the market, decision-makers will be better informed, negotiations more effective and better value can be achieved.

 

“This sector, just like the global political scene, can be highly unpredictable ” concluded Mr Berglund, “and the only way to counter that is by accessing the very best inside intelligence.”

 

Oslo-headquartered Xeneta gathers global shipping data from a community of over 700 leading businesses, covering more than 160,000 port-to-port pairings and over 35 million contracted rates.

 

www.xeneta.com