The latest Container Shipping Forecaster from Maritime Strategies International reports that almost two months into 2017, the liner sector is finding itself in positive territory. Each of the industry's drivers - demand, supply and earnings - have started the year in healthy shape and MSI expects the sector to move into the next quarter with a reinforcement of this encouraging trend.
In terms of demand, MSI notes that the global economy is operating on auto-pilot and, left to its own devices, it is on a trajectory which should support continued trade and earnings growth. Demand trends are fundamentally positive in the U.S. and the E.U., and improved commodity prices will likely support an improvement in non-mainlane volumes.
Taken in isolation, January's supply-side data would be genuine cause for relief across much of the industry. Demolition volumes set a new monthly record, deliveries were minimal and ordering was restrained. If scrapping continues at its current pace, in line with the MSI Base Case forecast, this will go some way toward reducing oversupply.
Despite the apparent good news, some perspective is necessary on the sector’s apparent recovery, says James Frew, Senior Analyst at MSI.
2017 appears much healthier than 2016, he says, but there are important caveats. “In terms of demand, dependable year on year growth of between two and four percent on the Asia-Europe and Transpacific trades would be welcome, but realistically constitutes the absolute minimum needed to absorb continued overcapacity. In terms of supply, deliveries of ultra-large vessels are soon set to increase, and we expect the fleet as a whole resume growth from Q2 onwards.
This analysis leaves the sector’s rates and earnings outlook finely balanced. Freight rates data from January were strong, even accounting for the impact of an early Chinese New Year and MSI expects liner operators to continue to restrict capacity, leaving rates at similar levels as we move into the second quarter. It also forecasts that time charter rates will pick up on the back of supply reductions and improved optimism. Post-Panamax rates could reach $9,000/day in the third quarter, and Panamax rates could reach $6,000/day over the same period.
In line with recent trends, MSI concludes that the most optimistic outlook for trades is those involving the U.S. This does, given the political climate, leave its demand forecast somewhat hostage to fortune, but absent a major shock or policy error Transpacific head-haul growth should continue at two to three percent and Transatlantic at around three percent. MSI expects Asia-Europe growth of two percent year-on-year over each of the next quarters, on the assumption of steady Eurozone expansion and an absence of a political shock in France.
The opinions expressed herein are the author's and not necessarily those of The Maritime Executive.