Analysis by BIMCO
Today’s main battlefield is the Far East to Europe trading lane, which recorded a demand growth of 8.0% in the first seven months of the year as compared to the same period last year according to CTS according to BIMCO.
August contributed further to a strong year, coming in 8.6% higher than August 2013. Knowing the sad state of the European economies, unfortunately, such a strong increase in demand appears to originate more from inventory restocking than anything else.
We have seen a strong individual “commitment” to mitigate the supply side impact from the liner companies during the last 2-3 years. Nevertheless, developments during the past two months have derailed this somewhat. The fleet has grown by 4.9% in the year so far, and is on track to grow faster this year than in 2013 on an annualized basis. The demolition of non-competitive ships, which has been brisk in the first seven months, has cooled down promptly in August/September from a monthly average of 43,618 TEU in the months of January to July to a monthly average of just 14,569 TEU in the most recent two months. This indicates that demolition going forward may not be as strong as it has been this year and the year before. Year-to-date scrapping now amounts to 335,000 TEU.
The past two months have once again proved that freight rates on container trades move in mysterious ways. What seems like a trend turns out to be anything but, and what seems to be industry knowing exactly how much supply is needed to make the best out of a strong demand side, pushes it too far.
The market is now past the peak season and supply management is as high as ever on the agenda for an industry being characterised by a full focus on cost cutting initiatives as it strives to restore profitability. The companies toughest on costs and the ones with the most efficient ways to operate their business networks and exploit the economies of scale offered by the market, will come out on top.
Alliances and extensive vessel sharing agreements are now completely dominating all trades in the industry. No single liner company can reach the next level of operational excellence on its own. Time will tell if all the initiatives and subsequent money saved will end up in the Profit/Loss statements of the liner companies. Or whether their customers are able to negotiate their share of the savings.
A factor in the future market that may not seem that significant today can have a large impact on the future exports of manufactured goods. The market today is dominated by China, a nation which will still be the dominant player going forward – but not undisputedly. Higher wage costs in China that producers are unable to pass on to consumers are set to bring to life other and cheaper manufacturing centres. Pushing that development forward is also the 30% rise in the Chinese Renminbi against the USD over the past decade, as Beijing slowly allows the Renminbi to appreciate. Indonesia, Bangladesh and Myanmar are on the rise and China may lend them an unexpected hand.