27-07-2017

Container lines in for a bumper year with profits of US$5b: Drewry

Drewry

WITH supply and demand tightening, profitability in the liner industry is assured this year, according to Drewry.

The consultant said its latest analysis shows that strong cargo growth, driven by vigorous retail restocking, will result in global demand growth this year of some 4 per cent, compared to a capacity increase of about 3 per cent.

"The tide of low freight rates is reversing," said Drewry, forecasting an average, across-the-board 16 per cent hike in rates, with yet more increases to come, and "much higher contract rates on some routes".

Speaking during the firm's Container Market & Freight Rate Outlook webinar presentation, director Philip Damas said there was no doubt that investors in container shipping would make money this year, estimating a 12-month cumulative industry profit of about US$5 billion, London's Loadstar reported.

Describing the rush of M&A activity in the past two years as a "super-cycle" of carrier consolidation, Drewry says the Cosco-OOCL deal, along with other mergers and acquisitions, has "changed the playing field", leaving shippers with much less choice.

Mr Damas said: "In effect, we have moved from an industry where we used to talk about the top 20 carriers, to 2018 when there will be just 11 left from this list.

"This, we suggest, will have very deep repercussions on the entire industry; on shippers, suppliers and terminals. Also on the level of competition between the carriers, where an industry that is moving, quite frankly, towards an oligopoly, will give carriers much more control than in the past."

Drewry said the forecast for fleet growth for 2018 looked higher, at 5 per cent, as a consequence of the push back from several ultra-large container vessel (ULCV) deliveries this year - although at this stage, with demand at around 3.5 per cent, the analyst did not expect the gap to have much of an impact on rates next year.

After that, the forward container vessel orderbook is "almost dead", noted Drewry, a factor that will certainly encourage investors as they smell the opportunity for significantreturns.

There is a big risk for shippers from the wave of M&A activity, said Mr Damas urging them to "rethink" their current strategy of long- or short-term contracts combined with use of the spot market, if they did not want to pay the price of significantly higher freight rates.

"The old strategy will no longer work," he said.

Source: Schednet 

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