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The outlook is cloudy and the container transport industry still needs to ride the wave

The outlook is cloudy and the container transport industry still needs to ride the wave

Alvin HKSG-GROUP 2020-10-23 17:07:46

Growth is likely to slow after an extended season for container shipping, which is likely to yield handsome profits.



The COVID-19 outbreak was initially seen as a threat to container transport, but changes in the market have allowed container transport to survive.But with economic and regulatory headwinds looming, will shipping companies be able to sustain profits in the future?


Container shipping continues to buck the trend, with the shipping season extending longer than usual, while rates remain stable near historic highs.


Analysts at Drewry said recently that container liners posted a healthy operating profit in the second quarter.Shipping lines are expected to record profitability in the third quarter after a rapid rise in spot freight rates.


"Freight rates around Golden Week in China are very different from the normal seasonality we see at this time of year, so while normal seasonal fluctuations can be applied over the next few weeks, the container shipping outlook remains unpredictable," said Sea-Intelligence CHIEF Executive Alan Murphy.


The International Monetary Fund has revised its forecast for global GDP this year to a smaller decline of 4.4% from 5.2% over the summer, due to better-than-expected market performance in the second and third quarters.


But the IMF added that growth next year would be lower than initially forecast.


Alan Murphy said: "The changes of 2020 are extraordinary and contradict the normal interaction of the components of the global economy.In addition, any projections for 2021 will need to take into account the evolution of the epidemic, except to say that the outlook is uncertain."


Alan Murphy added that while the idea of seeking predictability is understandable, the key elements of container transport are extremely uncertain.In some cases, within the life cycle of the container shipping industry itself.


Mr Delury also noted that the recent upturn in container shipping could be based on "unstable fundamentals".


While inventory restocking in the third quarter eased the decline in container traffic in the second quarter, it is still expected to fall slightly between July and September.


"Covid-19 remains the number one risk on our forecast and remains on a downward trend, with a second wave likely to derail the fragile economic recovery and have implications for global port handling," analysts said.


The latest Container Forecaster Report, published by Drewry at the end of September, shows that world Container port throughput makes forecasts for freight volumes for the second quarter, and possibly into the third quarter, confusing and falling by far less than expected.


It added that unemployment could rise sharply once the government begins to withdraw state support programmes, reducing household disposable income and, in turn, consumer purchasing power.


"Container trade has been quite resilient since the COVID-19 outbreak, and consumer confidence has been boosted by government support, but next year remains highly unpredictable and the turnaround that people are hoping for is actually overly optimistic," Mr Delury said.


Similarly, discretionary spending on goods is likely to fall once recreation has fully resumed.It is not clear how much of the cargo was transported through the warehouse, which could mask the vacuum at some point in the future.


Shipping companies' control of capacity may also be subject to government scrutiny.


Regulators in China and the US have taken note of container shipping's behaviour during the COVID-19 outbreak and have begun to question whether the shipping industry's alliances are fully justified.


'This makes it very difficult for carriers,' Mr. Delury said.Once owners lose their autonomy, they are at the mercy of very unfavourable fundamentals of supply and demand.If interest rates fall sharply, they are unlikely to find such heavyweight advocates to defend themselves.In the meantime, shipping companies will have to be careful in some way to make sure they can remain profitable, but not too profitable. 


After decades of damaging competition for market share, shipowners may have finally found the best way to co-ordinate capacity management, but are now finding it unusable.


"The COVID-19 outbreak presents them with an opportunity to counter potential supply and demand pressures, but regulators will not let them continue to use these methods at this stage in the future," delury said.