Global container trade, after an annual growth of 6.1% is estimated at 138.5 million of 20-foot equivalent units (TEUs) for 2017. Asia, and China especially, are major containerized-shipping drivers whose share accounted for 64% of the world’s container throughput in 2017. Of significant importance was internal Asian trade with a volume of 35.1 million TEU. Considering the spatial distribution of intercontinental traffic, Trans-Pacific trade (34.9 million TEU) and Trans-Atlantic trade (18.9 million TEU) hold a key position.
Turning eyes to the future growth of container traffic, the selection of opinions is comprehensive. BIMCO has projected that total growth in demand is expected to be lower than in 2017, but still high enough to improve the fundamental market balance, with demand expected to grow by 4%-4.5% in 2018. Alphaliner has presented a slightly higher percentage of traffic development with a prediction of global container trade accounting for 4.8% in 2018. Hapag-Lloyd, the world’s fifth-largest ocean container company, stated that the global container-shipping volume from 2018 through to 2021 is projected to increase between 4.8% and 5.1%. Against this background, DHL presents a much more restrained mid-term forecast with an average growth rate (CAGR 2018-2021) of only 2.3%. The highest growth rate in trade flow is expected in the trade routes of Inter Asia (3.1%) as well as in Europe-South America (3.0%), Far East-Latin America (2.8%) and Far East-Europe (1.6%).
Investigating the primary drives for the further growth of container trade, both the macro-economic situation as well as the efficiency improvement of the sector can be presented. The predicted rise in turnover stems from the economies of the US, Europe and China. An extremely important factor is that economic growth in advanced economies is generally good for container shipping demand, in particular for the flow of imports to North America. The United Nations Conference on Trade and Development pointed to CETA (Comprehensive Economic and Trade Agreement – EU & Canada) and the economic partnership agreement concluded between Japan and the EU in July ’17 as being positive developments for global trade and shipping.
Considering the changes in the sector, further concentration is expected. Industry consolidation will support higher margins and greater profitability as larger carriers take advantage of stronger negotiating positions with customers, terminals and vendors. Two examples of this trend can be noted. NYK, MOL and K Line have announced in a joint statement that their new joint venture ‘Ocean Network Express’ (ONE), has received all the necessary merger approvals. The new company is expected to start its operations from April ’18, as initially planned.
A significantly interesting example of cooperation is the initiative of Maersk and IBM. They have announced their intentions to form a Blockchain-based JV. The aim of the new company will be to offer a jointly developed global trade digitization platform built on open standards and ambitiously designed for use by the entire global shipping industry, addressing the need for more transparency and simplicity in the movement of goods across borders and trading zones. The development of the blockchain structure will strongly support the growth of intercontinental e-commerce, thus could also drive long-term container-shipping demand. This strengthening of the position of the main players on the market will also be supported by freight rates. According to an estimation by Drewry, rates will continue to rise in 2018, but at a slower pace than was seen in 2017, with high single-digit increases anticipated.
The observation of mega-trends in the container sector allows the indication of long-term drivers that should positively affect demand. McKinsey expects further implementation of fully automated processes of container transfer at ports like the TraPac terminal in Los Angeles or the ship-to-shore crane operations of APM Terminals at Rotterdam. Subsequent changes at the port hinterlands are also foreseen. The system will be completed by fully automated inland terminals and self-driving trucks being digitally pre-cleared by customs. Moreover, extending autonomous systems to the ships themselves would reduce labour and fuel costs per container while increasing the capacity per ship.
On the contrary, the IT revolution could also be treated as a challenge for the container sector. It is expected that disruptive technology will continue to complicate the market. For example, McKinsey noted that advances in robotics and 3D printing using metals, ceramics and other materials could shrink supply chains by localizing manufacturing and eliminating labour cost gaps in other parts of the world. Miniaturization, it added, could also reduce container-shipping demand.
An important challenge facing the sector is also oversupply. The global containership fleet is expected to grow by 5.6% this year, after taking into account projected vessel deliveries, deferrals and scrapping, to reach 22.28 million TEU by the end of 2018. Total new containership capacity is estimated at 1.5 million TEU, and more than 50% of this is expected to be made up of ULCS. There are 53 ships larger than 13,500 TEU scheduled for delivery. Considering the top industry orders (vessels of 22,000 TEU), 11 new buildings were contracted by the Mediterranean Shipping Company (MSC) and nine by CMA CGM (the first will be completed in 2019). COSCO Shipping also has 11 vessels under construction at Chinese yards, set for delivery by 2019. It is expected that by the end of 2020, 88% of the ships on the Asia–Europe route will be in excess of 14,000 TEU and the number of vessels of more than 18,000 TEU will double. Looking into the future, even bigger vessels may be introduced into service within the next 10-20 years. Significant increases in fuel costs, which can affect the efficiency advantages enjoyed by ever-larger container ships, may encourage the shipping line to commission 30,000 TEU ships.
However, the globally observed trend of extending the capacity of container vessels is not fully understood by industry. Drewry agreed that the economies-of-scale argument for wanting ultra-large container ships is misleading, as savings at sea are offset by higher costs at port. Despite the fact that some 20,000 TEU ships are required in respective trades, they are not a universal type of product that can just clip into trade lanes. Until the industry resolves both port productivity and intermodal and trucking connections, the implementation of such vessels will only put pressure back on the land side and not give such a technically good service to shippers.
All in all, the situation on the global container market, presented above, seems positive with moderate growth in traffic in 2018 and subsequent years. Optimistic expectations regarding the macro-economic situation, especially in advanced economies, and a further increase in ship owner efficiency (mergers & alliances) supported by gradual growth in freight rates should allow a positive rate of change to be maintained. However, the challenge may be a growing oversupply. Alphaliner argues that demand would need to grow by more than 8% for the surplus of supply to be cleared in 2018, while an annual growth rate of less than 5% each year will see this overhang extend into 2020.
Prof. Maciej Matczak
Gdynia Maritime University
BIMCO’s Container Shipping Market Outlook 2018, https://www.porttechnology.org/news/bimcos_container_shipping_market_outlook_2018
Containers: Will carriers finally get a pot of gold in 2018?, https://www.platts.com/news- feature/2018/shipping/2018-shipping-outlook/122117-containers-outlook-2018
McKinsey forecasts the next 50 years of container shipping, https://www.freightwaves.com/news/2017/10/26/mckinsey-forecasts-the-next-50-years-of-container-shipping
Ocean Freight Market Update, February 2018, DHL Global Forwarding, Freight, 2018.
Outlook 2018: Box shipping looks to turn a corner in 2018, https://fairplay.ihs.com/commerce/article/4295341/outlook-2018-box-shipping-looks-to-turn-a-corner-in-2018
Outlook 2018: Shipping on course for recovery: analysts, http://www.hellenicshippingnews.com/outlook-2018-shipping-on-course-for-recovery-analysts/