Shipping Market Comment Q3/2021

Container market firm beyond 2022

Financially, everyone enjoyed a very pleasant summer with shipping markets pressing further into the dark green. Our industry is quickly deleveraging and shifting back into an-all equity position. Now it feels we are in for the most interesting 6 months of our lifetime. With supply demand as tight as it is, there are good reasons to believe that the container market rally will last longer than initially thought – most likely into the second half of 2022.

Although cargo growth doesn’t look overwhelming, we think that recent growth rates cannot be dismissed, either. Compared with the last full quarter before corona, average monthly container liftings have grown from 14.2 mill TEU to 14.7 mill. TEU (+3%), driven by an ultra-strong transpacific trade. However, the underlying strength of trade might be greater bearing in mind that many millions of tons of goods have moved out of the container into the bulk/breakbulk modes of transportation due to lack of container/slot availability. These hidden volumes are not included in official container trade statistics. A seasonal slowdown in trade activity over the next months (slack season after Golden Week…) will be very limited, if there is one at all, given the massive backlog in requirements. The outlook for next year remains strong based on economic forecasts, with the IMF projecting 4.9% world GDP growth in 2022. Bear in mind, that stock levels for manufacturers and retailers remain very low in the US and also in Europe. This means they have to bring in even more cargo to keep up with sales growth and replenish their inventory at the same time! On the other hand, a shift of consumer spending from goods back to services may pull in the opposite direction. Yet, the indications are that global container trade growth will at least be around +3% or +4% over the coming year. Again, not overwhelming but still solid.

On the supply side, we expect +4.2% nominal fleet growth (164 vessels) in 2022 after +4.5% this year. However, effective fleet growth (TEU miles per year) is much lower – perhaps just half as much – because of reduced fleet efficiency due to port congestion. Even a rise in average sailing speeds cannot make up for it as illustrated by a historic low in schedule integrity in global liner shipping. In August, two out of three liner vessels worldwide had dropped out of schedule, according to Sea-Intelligence. The CEO of Mitsui OSK Lines gained a lot attention through an article in the Financial Times where he called for co-ordinated action by governments to address the logistics chaos. Yet, quick solutions are not available, the best-case scenario is a gradual easing over time as the world learns to deal with COVID. China’s zero-COVID strategy with strict lockdowns once the first cases of the highly transmissive delta variant are showing up is bound to continue as vaccination in the country doesn’t advance as quickly as in the west. New disruptions to shipping operations due to quarantine provisions are to be expected. The situation on the US West Coast has only got worse, too, with the number of vessels waiting at anchor outside LA/LB rising above 70. US East Coast ports are also increasingly affected as well as transhipment hubs in the Med.

No relief from the charter market. Carriers could inject more ships as extra loaders into the already-congested trades, perhaps expand port rotations to “new” under-utilized ports. However, the charter cannot provide this kind of flexibility any longer. Tonnage availability has only dried up further over the summer months. The larger sizes are completely sold out on prompt basis weeks or months in advance. Some figures to underline the historic tightness in the charter market: In the post-panamax segment only 9 ships are scheduled to come open until 1st April. In the panamax class, it’s around 40 units where in the past, the market was used to having 220 open positions on panamaxes over the same period! In the smaller sizes, the picture is similar: 48 vessels in the 2,000-3,000 TEU segment, compared to 210 vessels in the past. Only in the 1,700 TEU segment, there is a bit more choice with 100 charter candidates coming up versus 300 in former years. The number of tramp ships coming available goes up in the period 6-12 months forward but that’s no relief for the stresses in the liner system today. Although increases in the charter market have begun to level off in the past weeks, we still see huge uncovered tonnage demand which may drive hire rates higher during Q4. Financially, liner trades can cope with further gains on charter rates, we believe. Today’s freight rates and record time charter equivalents provide a bit more upside potential yet especially for short durations on smaller tonnage.

First published in THE MARITIME OVERVIEW (DR. THOMAS HARTWIG)