Differences of opinion on container outlook

Differences of opinion on container outlook
02/07/2019 https://www.hellenicshippingnews.com/differences-of-opinion-on-container...

In an economy mired by trade wars, rising global unrest and increasingly complex geopolitics, views are – unsurprisingly – mixed about the future fortunes for container shipping.

At Multimodal 2019, a freight transport, logistics and supply chain management event held in Birmingham in the UK last week, one of the world’s biggest box shipping firms, Ocean Network Express (ONE), took the optimist position about sector growth.

“The container shipping industry has been for, actually, the last five decades — except for one year — a growth industry, so [it] is very likely to continue to grow,” Stanley Smulders, ONE’s marketing and commercial director for the Europe and Africa region, explained. “How much that will be, … that depends, of course, on very many political developments, economical developments, but in principle, we would expect that the industry as such will continue to grow.”

Yet, Andy Foulds, sales director for the UK at container transport firm Samskip, said that because of the uncertainty surrounding the UK’s departure from the EU (Brexit), much of his company’s outlook currently “has a question mark against it”.

“Generally speaking, we’re still waiting for the normal patterns of trade to settle down. … We’re seeing quite a lot of volatility, which makes it quite difficult,” he noted. Commenting specifically on Brexit, he said: “People are looking at how they can risk mitigate, how they can perhaps re-engineer their supply chains, and some customers, for the first time, are now starting to look at containers rather than just simply defaulting to trailers. So, while it’s a challenging time with the volatility, it’s also a very interesting time, with new opportunities coming up.”

According to Mr Fould “the major impact” for Samskip is the current volatility in the industry connected to this Brexit uncertainty. When there’s volatility, the impact for fixed assets — ships that sail daily or rail that moves daily — is that one day they’re full and the next day they aren’t, he said, and that leads to greater prices for the consumer as they’re now having to pay when ships are both empty and full. Therefore, net, the prices per load are increasing. However, Mr Fould also explained that customers are now having to question their supply chain related to the threat of Brexit and whether the Strait of Dover, the most narrow part of the English Channel, will see delays. For container operators, the opportunity here centres on new customers exploring different routings for the first time.
Points of contention

Despite his expectation for box shipping sector growth, Mr Smulders did note that there are a number of challenges at play. Discussing the International Maritime Organization’s incoming 0.5% limit on sulphur in fuel oil used on vessels operating outside designated emission control areas, he said that the move to low-sulphur fuel “is probably a major challenge for the whole industry and for its customers” due to the high costs. Two big challenges come with the switch to cleaner fuels: they are “not so much” available at the moment and they will be much pricier.

“People who ship containers need to be prepared that the price will go up to recover those costs,” he warned.

“This is an industry where the financial probability and financial situation of shipping lines are not always that easy, and it has a lot to do with the supply and demand situation,” Mr Smulders added. “We normally have too much ship capacity compared to demand. That is an ongoing challenge because when ships are being ordered, you never know how the industry will exactly develop other than, we hope, that it continues to grow.”

Mr Smulders additionally noted that with vessels increasing in size, ports are facing mounting challenges. Few ports exist that can handle large ships, and increasing vessel size affects land transportation — whether it be rail, truck or barge — because greater volumes means more capacity is needed to move the containers inland.

However, Mr Smulder said that where there are challenges for the container shipping industry, there are also opportunities. If fuel is much more expensive, fuel consumption becomes increasingly important, he explained, and firms with the most modern fleets have advantages. Additionally customers could well make a pronounced shift from non-containerised to containerised transport to take advantage of savings, while digitisation of processes and interaction with clients brings further opportunities, he added.
Two minds

In analysis of the box shipping market published in June, Peter Sand, BIMCO’s chief shipping analyst, said that as the body predicts weak demand-increase for the quarters ahead, the sector will revert back to negative margins.

According to a webinar, Mr Sand said that world trade is stalling, industrial production is in sharp decline and new orders are decreasing too. Furthermore, economic growth is forecast to remain flat for emerging economies and decline for advanced ones. The challenge for the shipping industry, the webinar claimed, is to adapt to much weaker demand growth at the same time as handling agenda-topping regulatory issues. For container shipping, the webinar said, numerous pitfalls over the coming months will determine the destiny of 2019.
Source: Baltic Exchange