Analysts are offering caution about the outlook for container shipping for the rest of the year, even as the widely followed Shanghai Containerized Freight Index (SCFI) hit its highest level since early 2017 on Friday.
“As the trade war goes on, more containerized goods are getting involved — mostly on the transpacific trade lane, but also on the transatlantic routes — as the EU and U.S. are far from settling their disputes,” writes Peter Sand, the chief shipping analyst for BIMCO.
“BIMCO expected the fundamental balance to improve in 2018 and higher freight rates across the board as a result of the fleet growing slower than demand; now it seems as if it’s not going to happen.”
Kuehne + Nagel, one of the world’s largest logistics companies, says, “World trade is cooling off recently and the downturn will likely accelerate in September.”
“It seems that the trade disputes are beginning to hit the real economy. Exports of the emerging markets are shrinking at a higher pace. As for August, over 70 percent of the economies are experiencing a decreasing dynamic with declining year-on-year rates. The picture has changed completely since July, when the majority of countries were on an upward trend again,” the Swiss forwarder said.
On Friday, the Shanghai Shipping Exchange said the SCFI, which measures spot rates out of Shanghai to different regions around the world, climbed 38.82 points to 939.48. In the transpacific trade, it said spot rates to U.S. West Coast ports climbed $172 to $2,298 per 40-foot equivalent unit, while to the U.S. East Coast ports it said rates climbed $156 to $3,485 per FEU. To North Europe, rates fell $26 to $933 per TEU and to the Mediterranean they fell $7 to $908 per TEU. (Confusingly, the SSE gives container rates to the United States in terms of 40-foot containers and to routes in all other parts of the world in terms of 20-foot containers).
Kuehne + Nagel says after a strong July its gKNI World Trade Indicator shows “a negative trend. The sharpest slowdown is expected for emerging markets, which are most exposed to any impact from rising trade tensions. In September, a major setback in exports is expected in South Korea, Japan, Taiwan, India and Brazil.”
According to LogIndex, the data company of the Kuehne + Nagel Group, “The trend is in line with the latest manufacturing output forecasts: In September, the global industrial production will reach the lowest monthly increase since July 2015.”
Sand said the negative outlook for container shipping “is partly because of demand growing marginally less than expected, but mostly because of much faster fleet expansion.”
Sand says, “The capacity of the fleet is growing too fast for the demand to cope with it.” He says shipyards have delivered 947,000 TEUs of capacity this year, “slightly above our expectations,” and demolitions have been low. Ships with just 36,833 TEUs of capacity had been demolished by early August, and Sand said BIMCO was lowering its demolition estimate for the year from 250,000 TEUs to just 80,000 TEUs.
He noted “a different ‘distribution’ of demand growth — away from the short intra-regional hauls towards the longer-distance trades — would have meant a better match of newbuild ships and demand growth, and potentially better earnings.”
Sand says, “Currently, 2019 is on target for much more manageable fleet growth, that not even a very low level of demolition would be capable of putting off track, unless a sudden rush by shipowners toward the yards emerges. Contracting interest tends to come in waves, and it’s been low so far in 2018.”
Despite the run-up in the SCFI, Sand says both spot and long-term contractual rates (measured by the SSE’s China Containerized Freight Index) are “mostly under par compared to last year. Using the CCFI as a proxy for industry performance, the composite is down 4 percent on a year-to-date average compared with the same period last year,” he said.
Freightos, an online freight marketplace, says this year “Ocean freight peak season came early with transpacific prices at an 18 month high” and some of the increase in volume coming from “importers getting orders in before tariffs on Chinese products take effect.”
It said its Freightos Baltic Indexes indicate “China-U.S. ocean rates are still rising, and the September 1 GRIs should cause the West Coast and East Coast indexes to jump about 10 percent next week.
“Ocean peak season shipping is in full swing, as evident by China-U.S. shipments operating on a three-to-four-week backlog since mid-July. China-U.S. general air freight rates also rose this week, ending months of inertia,” it said.
Zvi Schreiber, chief executive officer of Freightos, said, “So has this year’s peak season merely been brought forward rather than extended? We’ll know the answer to that by where prices are sitting in early October, after China’s Golden Week factory shutdown.”