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October 09, 2018

Global trade tensions will affect container carriers' bottom line according to Drewry

According to the latest edition of the Container Forecaster from global shipping consultants Drewry a gloomier world economic outlook and rising trade tensions have forced a downgrade of the forecast for container demand over the next five years.

The new forecasts suggest that the industry now faces being stuck with the current excess capacity situation for several more years.

"The anticipated re-balancing of the container market looks to have been postponed. That's more bad news for carriers that are facing substantial cost increases as a result of stricter ship fuel standards from 2020," said Simon Heaney, senior manager, container research at Drewry and editor of the Container Forecaster.

It has been a topsy-turvy year in the container market with demand growth oscillating on a quarterly basis, from the highs of the first quarter to the lows of the second. Growth returned with a vengeance in the third quarter, but no-one can tell at this stage how much it was artificially stimulated by fears surrounding the latest round of tariffs issued by the US and China, or how hard the come down will be in the fourth quarter without the expedited cargoes.

Drewry rough impact assessment of the latest round of US tariffs imposed last month indicate that eastbound Transpacific flows could be hit with an opportunity cost of approximately 1 million teu next year.

On the supply side, greater than expected new ship deliveries, combined with fewer demolitions in the second quarter prompted Drewry to marginally raise the fleet growth rate forecast for this year. While the difference between the current and previous forecasts for year-end fleet teu is relatively small at +67,000 teu, the significance of the upgrade is larger as combined with a more pronounced downgrade for container volumes supply growth is now expected to exceed that of demand.

Such a scenario has clear negative implications for container shipping lines as without any meaningful narrowing of the gap between supply and demand they will have to continue to firefight capacity management on a week to week basis in order to prop up ship utilisation and freight rates.

Source: Drewry