Freight rates forecast to rise next year

28 October 2016

Container line Hanjin going into receivership represented the low water mark for the shipping industry and recovery is now due, according to a report.

Consultancy Drewry said concerns about weak trade growth and fleet oversupply remained but it is nonetheless predicting a return to growth in its latest annual Container Forecaster and Review 2016-17.

Drewry predicts the second half of 2016 will be better than the first half for the industry but it still anticipates that carriers will record a collective operating loss of $5bn this year.

However, the industry is likely to return to the black with an operating profit of $2.5bn in 2017, thanks to improving freight rates and slightly higher cargo volumes.

“However, this anticipated recovery needs to be put into perspective,” Drewry said. “While average freight rates are expected to improve next year, this will follow several years of negative returns and will still leave pricing well below the average for 2015.”

The consultancy described the commercial behaviour of carriers as “unpredictable and counterintuitive” and said liner complacency on the risks of insolvency may lead to such behaviour continuing, despite the failure of Hanjin.

Container ship owners are also having to deal with increasing fuel prices though some of this cost is liable to be passed on to customers via the bunker surcharge, which links freight rates with oil prices.

Increased scrapping of vessels and a relative lack of new orders are helping ease oversupply.

“But even so, the next two years will still be very challenging on the supply side with annual fleet growth of between 5% and 6% and many more ultra large container vessels (ULCVs) to be delivered,” said Drewry.

This is forcing consolidation upon the industry and carriers who best weather the current prolonged storm are those most likely to emerge stronger in 2019-20.

Drewry estimates that overall revenue for 2016 may reach $143bn, far short of $218bn in 2012, and it urged carriers to concentrate on increasing revenues rather than maintaining market share.

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