BY CONTINUING TO USE THIS SITE, YOU ARE AGREEING TO OUR USE OF COOKIES. REVIEW OUR PRIVACY & COOKIE NOTICE
X
Skip Navigation LinksHome|News & Analysis|News Features|News Feature Detail

Print

Containers: Will carriers finally get pot of gold in 2018?



2018 Shipping Outlook



The container market may be poised for a stronger 2018 amid continued demand growth and carrier consolidation, but only if box rates provide better profit margins. This will depend on annual contract prices and spot box rates.



  • Annual contract price negotiations are $50-$100 higher on year
  • Spot box rate volatility anticipated on capacity utilization rivalry
  • Demand growth may not be enough to tame vessel supply


The container market may be poised for a stronger 2018 amid continued demand growth and carrier consolidation, but only if box rates provide better profit margins. This will depend on annual contract prices and spot box rates.


The first tranche of annual contract negotiations for 2018 are well underway for the North Asia to Europe container routes.


Rates for Beneficiary Cargo Owners, which are typically large importers with an in-house logistics department, are between $1,100-$1,200/FEU. In their turn, smaller companies range between $1,300-$1,400/FEU.


These prices are typically $50-$100 higher than last year as customers did not experience as reliable carrier service as they felt they could have in 2017.


Analysis continues below...


Request a free trial of: Dry Freight Wire

Do you want to manage price risks and improve profitability on every deal or shape your own analysis, strategic planning and forecasting of the dry freight market?

Use the request a free trial link and we will send you five issues of Dry Freight Wire free for your preview. This will help you gain complete visibility of the latest developments in the dry freight market and stay ahead of the game.

Request a trial More Information


This has encouraged them to pay a premium to the carriers for this improved service in lifting scheduled cargoes.


Looking at the spot box rates for 2018 the peaks and troughs are expected to be soother compared to the price rally of the first half of 2017.


This is firstly due to no further carrier bankruptcies occurring and causing that air of uncertainty amongst the carriers' customers. Secondly, the carrier consolidation that took place during 2017 may provide reassurance to the supply chain that the carriers are able to deliver a reliable service.


Of course, the potentially improved reliability and spot price structure for 2018 still has to tackle the traditional caveats of vessel oversupply, underachieving trade demand growth and bunker price increases.



VESSEL OVERSUPPLY



Taking these caveats in turn, vessel oversupply is the Achilles heel of the shipping industry.


Alphaliner believes an excess of one million TEU will enter service in 2018 and is weighted towards the 12,000+ vessels.


According to Banchero Costa, "demolition activity may remain high especially over 2017-2018, due to the continued large number of deliveries expected and environmental regulations." Their fleet growth forecast is around 4% for 2018.


The issue is the demolitions are on the smaller sized TEU vessels which mainly trade on the secondary lines.



TRADE DEMAND



Secondly trade demand: Banchero Costa believes the growth stems from the US, Europe and China. Alphaliner said, "global container trade was expected to grow by 6.1% in 2017 and 4.8% in 2018."


Throughout 2017 the carriers' capacity utilization had usually been in the 90 percentile.


An unexpected cyber attack on Maersk in mid-2017 stalled its global container operations, while customers had to use other carriers where possible.


Once resolved, Maersk had to work hard to regain its high capacity utilization figures; this took till Q4.


This cyber attack also affected other carriers who used Maersk's logistics companies and terminals causing delays in the supply chain.


Cyber security is one of the top five business risks and may occur in 2018 especially as carriers start to integrate their IT systems after concluding the recent M&A activity.



BUNKER PRICES



Finally, bunker prices may increase as refinery upgrades in Antwerp and Rotterdam are likely to presage a tighter European fuel oil market in 2018, according to bunker market sources.


The upgrade is part of a wider trend, which has a serious impact on the fuel market. Refineries in Europe and Russia have been constructing delayed cokers and de-asphalter plants in order to reduce the output of fuel oil.


While the extent in output reduction in Europe is difficult to quantify, any reduction in fuel oil availability will have a knock-on effect on supply.


This could lead to growth in bunker prices that some carrier sources have already mentioned in their 2018 outlooks.


To conclude, carriers may have to rely on sheer optimism to keep spot box rates from dropping as demand trade growth may not be enough to tame vessel supply, especially on the primary routes.


Their customers should anticipate more volatility in 2018 as carriers and alliances compete to ensure capacity utilization remains in the high 90% range.


The carriers who provide performance reliability and do not rely on unscheduled void sailings could get a bigger pot of gold.


As Dolly Parton said "The way I see it, if you want the rainbow, you gotta put up with the rain."


--Andrew Scorer, andrew.scorer@spglobal.com
--Edited by Jeremy Lovell, jeremy.lovell@spglobal.com







Copyright © 2018 S&P Global Platts, a division of S&P Global. All rights reserved.