In its 2019 Global Container Shipping Outlook, AlixPartners say that the trade between the US and China, the tariffs imposed because of that, and Brexit will disrupt the container shipping industry throughout the course of 2019.
Specifically, the introduction of the new tariffs, as well as Brexit, are possible to disrupt the container industry during 2019. The industry is currently facing new pressures, the report notes, including the costs regarding the IMO 2020 cap on sulphur emissions 2020. Those factors, along with less success in cost cutting, are increasing financial leverage, which would constrain carriers’ ability to maneuver.
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Moreover, high revenue increases are not expected in 2019, ahead of growth in fleet capacity that put pressure on rates for most major trade routes, including the busy westbound Asia–Europe lane. However, there was one exception to that trend in 2018, and that was the heavily trafficked eastbound transpacific (EBTP) trade route. Rates on EBTP doubled in 2018 as US shippers wanted to increase inventories before new tariffs apply. Despite this exception, the rates are already on the downswing again as demand weakens.
Another aspect is that the IMO 2020 regulations will prove challenging for carriers. Due to the regulations it is not clear whether refiners can produce enough low-sulphur fuel to deal with high demand in 2020 and after. Scrubbers can help carriers comply with the new limits, but concerns remain that the supply of scrubbers will not meet demand.
This fundamental change to such a large component could make or break carriers’ margins depending on how successful carriers are in passing along fuel-cost increases
AlixPartners emphasized.
Continuing, carriers’ financial fortunes are based on whether they will be capable of recovering any additional fuel costs through surcharges or if they will have to bear at least a portion of those costs themselves. According to the report, carriers sailing in the Asia-Europe route in 2018 would have had to increase their BAF rates by 40%, or $270 per forty-foot equivalent unit, in order to achieve the same financial result. Carriers operating in the EBTP route would need to increase of 33%, or $150 more per FEU.
In addition, carriers will have to impose higher fuel surcharges in 2019 and beyond to keep their margins, but there will be no guarantee that those charges will stick or that they will recovery soon. If that does not happen, it will affect cash flow negatively.
Finally, AlixPartners estimates that the new fuel rules could expose carriers to as much as $3 billion in additional costs on the EBTP and Asia–Europe routes alone. As for the industry as a whole, it could be looking at as much as $10 billion in additional exposure, according to 2018 prices.
If tight supplies of LSFO trigger higher prices, fuel costs could climb even higher, making the difficult task of cost recovery even more urgent
The report says.
Read more information in the PDF below