Demand from Japan or Europe could provide a positive surprise for the shipping industry, but the outlook for China is unpredictable, according to a report from the Baltic and International Maritime Council.
Reviewing the outlook for shipping, the Baltic and International Maritime Council (BIMCO), noted there was a “significantly lower level of growth for global GDP in 2015 than in the previous five years” and that as “hope for a bounce-back in 2016 wanes, shipping should brace itself for yet another challenging year.”
The “International Monetary Fund has forecast higher GDP growth rates for 2016 across the board,” BIMCO said in its annual review, adding, “As China re-evaluates its future growth and direction, the shipping industry can expect an uncertain and lower level of support from one of the most important drivers of shipping demand growth in recent times.”
The Denmark-based organization said in the container shipping industry “growth on key trade lanes is needed to restore market dynamics.”
“Disappointing European demand for containerized goods versus the strong growth of imports into the U.S. slowed the demand for container ships significantly [in 2015],” said BIMCO. “At the same time, 900,000 TEU worth of ultra large container ship capacity was delivered.”
The market imbalance worsened as the supply-side rose to a four-year high, an estimated 8 percent increase in 2015, while demand-side growth rate hit a three-year low, and “The lack of head haul volume growth on the Asia to Europe trading lane was particularly worrisome as it accelerated the heavy cascade of ships clogging up other parts of the network,” according to BIMCO.
Going forward, it said what is needed to revive European imports of containerized goods is for the euro to strengthen against the Chinese yuan renminbi and for retailers to begin restocking again.
Towards the end of 2015, idled container ship capacity reached “a high not seen since 2010 at over 1 million TEU, as ships of all sizes were swiftly removed from over-supplied trade lanes. But it did not prove to be enough to counter the drop in demand and subsequent revenue erosion,” said BIMCO
“A new normal GDP-to-trade multiplier limits the potential upside of the demand-side, careful management of deployed capacity by the individual operators is still of utmost importance”
With more than 1.6 million TEUs of capacity delivered in 2015 and capacity expected to increase another 3.5 percent this year “challenging market conditions for container shipping will extend for another year,” it said.
What could turn things around?
BIMCO says, “Europe and Japan, in particular, look like they might provide positive surprises in 2016. The European Central Bank and Bank of Japan are continuously seeking to boost their economies to bring on the sustainable recovery that everyone needs.”
“In the US unemployment rates are low and GDP growth is high,” it adds, and, “This means that higher interest rates may be just around the corner. This could raise prices but could also lead to some ‘cooling off’ for investments and consumption across the globe.”
BIMCO noted, however, “The unpredictability of China’s market forces is really causing some concern. We cannot rely on the usual market forces or conditions within some Chinese industries, which is bringing more volatility in shipping demand.
“What seems certain is that the rebalancing of its economy from investment to consumer-driven growth will also drag down economic growth. This transition is long overdue and – more positively – its greater sustainability should support a steadier level of growth in shipping demand in the future.”
In dry bulk shipping, BIMCO notes that the Baltic Dry Index hit an all time low of 498 last year. In 2016, it says “much depends on what Chinese steel mills will do. Will they continue production above domestic consumption – or substitute domestically mined ore with imported ore? The jury is still out.”
BIMCO said the both the crude oil tanker and oil product tanker markets “enjoyed an extraordinarily strong freight market throughout 2015; ignited by the drop in oil prices that began in mid-2014 and supported by a relatively low supply-side growth in 2015.”
“Going forward, the significant building of oil stocks in 2015 may slow tanker demand growth somewhat in 2016.”
BIMCO: Shipping should brace itself for yet another challenging year
