Canadian Shipper


Gradual recovery foreseen from overcapacity in bulk and container shipping markets

MONTREAL, Que.–While there are presently few signs of relief in the over-tonnaging of world bulk and container shipping markets and the persistent imbalance between supply and demand, a gradual recovery could take root in the coming years.

This was a central message framed within an ocean shipping outlook presented by Peter Kerr-Dineen, Chairman of London-based Howe Robinson Shipbrokers, at the annual conference in Montreal today of the Shipping Federation of Canada.

In his presentation, Kerr-Dineen dwelt at length on current developments in China due to the expanding influence of the Asian giant on global shipping activity, including in such sectors as iron ore, whose price collapse has had a big impact on Canadian exports of the commodity.

He said that Howe Robinson continues to take a positive view of China’s future prospects in the wake of rapid modernization in recent years. “We are inclined to discount the potential for hard landings and structural shocks.

“However, for the first time in a decade or more, we notice a number of distinct changes of direction, many of which date back to the recent change of the political guard. Clearly, growth rates are easing, but are likely to remain in the region of 6% for the next year or two. Clearly, there is a move to rebalance the economy, promoting services and consumption, reducing the excessive dependence on manufacturing…and a very real imperative to bear down on socially and economically unacceptable levels of pollution.”

All trends, said Kerr-Dineen, point to a maturing economy and suggest that things are reaching “a new inflection point” in certain key areas where China has been so dominant in driving dry bulk trade growth.”

Overall in 2015, he forecast that world dry bulk volumes will grow by 2.5% versus six to seven percent in the recent past.

With steel production flattening out and blast furnace production trending at a still lower rate, Kerr-Dineen said “of even greater concern to the dry bulk market is the imminent maturing of China’s explosive growth in iron ore imports.”

Between 2004 and 2014, he recalled, iron ore trade growth in volume terms alone ran at an annual average of 9%, totalling 1.4 billion tonnes in 2014. “From late 2016 onwards, we expect this rate of growth to moderate to perhaps 3-5% and can foresee shorter period when it may well be even lower.”

Such trends have prompted major iron ore exporters to sharply scale back planned investments in various mining projections.

China, he noted, is now well past the phase when steel production growth greatly exceeded GDP growth. “If China follows the path of other developing nations in the future, we can expect steel production growth to fall below GDP.”

Falling commodity prices have similarly affected the coal market trades.

On the other hand, Kerr-Dineen suggested  there were more reasons to be positive about the grain trades in the medium to long term.

In this regard, he cited a statement in the past week of Frank Ning, Chairman of COFCO, biggest supplier of agro-food products in China, who indicated that Chinese grain imports could surge from the current 120 million tonnes per annum to 200 million tonnes per year.

Nonetheless, Kerr-Dineen said that due to “vicissitudes of harvests around the world” his firm’s forecast is for a small reduction in total grain volumes in 2015.

Turning to the container charter market, he said that it had staged its strongest rally in the first four months of this year since an initial recovery from the 2008-2009 recession. Period rates for 8,500 TEU vessels rose from US$28,000 per day to US$36,000. For the mid-size Panamax ships, they rose to $15,000 daily from US$10,000 daily.

“The oil price fall,” said Kerr-Dineen, “appears to have been one of the factors supporting a notable increase in demand on the key container routes into Europe and the U.S.” This has fuelled expectations that it will spur consumer demand in the developed, oil-importing regions. And the fall in bunker prices has increased the relative competitiveness of ships with greater slot costs.

In short, time charter rates have increased whereas the overall operating costs of ships (i.e. fuel plus hire) have decreased.

Generally speaking, Kerr-Dineen said, the market has been through a phase where, even though trade growth for the smaller sections of the fleet has been continuously in excess of fleet growth, the surplus demand has been met by the deployment of still bigger ships. (Megavessels carrying up to 20,000 containers are soon to be deployed on the Asia-Europe trades.)

The push to ultra large container ships has resulted in the cascading of the mid-size vessels to other routes.

The surplus of the latter vessels seems to have worked its way through the system, according to Kerr-Dineen. At least in the short term, this has resulted in “a more healthy equilibrium in this sector of the market. The rate response has been immediate. While our overall view of supply and demand for the container market as a whole suggests that further sustained progress is unlikely this year, our current expectation for the market as a whole is for gradual but sustained recovery to take root in the coming years.”

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