Drewry: New Risks Heap More Pressure On Beleaguered Container Market

Drewry: New Risks Heap More Pressure On Beleaguered Container Market

Drewry: New Risks Heap More Pressure On Beleaguered Container Market

Seeing the further deterioration of the container market in the past three months, Drewry has a negative outlook for the container ports all over the world not only for the present year but also for the five-year horizon in the Container Market Annual Review and Forecast 2019/20 that Drewry Shipping Consultants published.

Drewry now expects that the global port will rise by 2.6% in 2019 which is lower than the previous expectation of 3.0%.

“The weight of risks pressing down on the container market seems to be getting heavier by the day,” said Simon Heaney, senior manager, container research at Drewry and editor of the Container Forecaster. “The situation has been exacerbated by a brace of new problems that cloak the market in further layers of concern and uncertainty over those that previously existed.

“There is a danger that this stream of negative news creates a self-fulfilling prophecy that might run contrary to the facts on the ground. First-half port statistics were reasonably strong and consumer demand had been fairly resilient, all things considered, but some key indicators have more recently taken a sharp decline and we feel it is right to adopt a slightly more cautious attitude,” added Heaney.

Also read: How is Ship Container Tracking Done?

The impact of IMO 2020 has been recognised as one of the major risks for the container ships in the report. However, there no clear indication of the amount of additional cost that the industry will land on. The drone attack on Saudi oil facilities recently muddied the water which will lead to an increase in oil prices.

According to Drewry’s estimation, an additional $11 billion bills will have to be faced by the operators. This will be according to the transition to low-sulphur fuel and the compensation that the carriers will receive will indicate the supply level disruption next year.

“Our working assumption is that carriers will have more success in recovering that cost than previously, to the point that there will be no major disruption to supply,” said Heaney.

“However, if they fall short by a significant margin we think that lines would quickly dust off the decade-old playbook that was used to see them through the global financial crash. There will be much less focus by carriers on service quality and more on cost-cutting.

“In that scenario, carriers will try to protect cash flows by restricting capacity as best they can, through a combination of measures, including further slow-steaming, more blank sailings, and off-hiring of chartered vessels,” Heaney added.

If the carriers/owners fail to recover most of the large fuel bills then they will wither have to fit exhaust scrubbers in more ships in order to continue on cheap high-sulphur oil and/or to ramp-up demolition.

“If events follow this path the supply-demand balance will look very different from our current forecast. The worst-case scenario, when most shipping lines cannot operate close to breakeven and some potentially face bankruptcy, would actually be a far quicker route to rebalancing the market than the current plodding track. It would take a very brave carrier to want such a turn of events, but for those that could be sure of coming through the other side, after some initial pain the rewards would be far greater,” said Heaney.

“Most shippers accept that they will have to pay more but they rightly expect any increase to be justified with a credible and trusted mechanism – in other words the ball is very much in the carriers’ court,” said Heaney.

Reference: drewry.co.uk

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