News Before It's News
About us | Ocnus? |

Front Page 
 Dark Side
 Defence & Arms
 Light Side

Business Last Updated: Feb 24, 2021 - 11:02:25 AM

Global Container Shipping Rates Are High, but Unsustainable
By International Shipping News 24/02/2021
Feb 24, 2021 - 11:01:18 AM

Email this article
 Printer friendly page

Global container shipping companies’ performance will be strong in 2021 after a profitable 2020, Fitch Ratings says. Spot freight rates will remain high in the short term, which will flow through to contracted rates for 2021. However, we consider the current rates unsustainable in the medium term, as the sector is susceptible to rate volatility and risks of weak economic recovery and trade protectionism, requiring constant prudent capacity management.

A combination of rebounding demand for goods in 2H20, supply chain disruptions – such as container box shortages and port congestion – and more strategic capacity management drove container freight rates up, especially on the routes from China to Europe and the US. Shipping one 40-foot container from China to Europe or the US West Coast now costs over USD8,000 and USD4,000, respectively, from well below USD2,000 a year ago, according to Freightos Baltic Index.

Trade volume recovery was fuelled by a change in consumer spending habits during the pandemic – ordering more manufactured goods while saving by spending less on services, such as leisure and restaurants. It was further supported by inventory re-stocking by businesses that faced acute supply chain disruptions and increased demand for personal protective equipment. Total volumes shipped from Asia to North America exceeded 2019 levels by over 7% in 2020, according to Container Trade Statistics. A decline in volumes on the Asia-Europe route by about 5% in 2020 indicates a growth potential in 2021 as demand recovers.

Container box shortages and port congestions due to pandemic-related operational disruptions have extended container ships’ turnaround times, further increasing freight rates. A usually quiet period during the Chinese New Year could have eased some congestion, but demand remained strong as China maintained its production levels. The ongoing virus outbreaks in many regions and mobility restrictions are likely to keep freight rates abnormally high in the short term.

These higher-than-usual spot rates will translate into higher contract freight rates in the ongoing spring contracting season. However, we view rate volatility as an inherent sector risk and we expect rates to reduce once supply disruptions related to the pandemic are addressed.

More mature capacity management helped avoid oversupply during the pandemic. After more than a decade of overcapacity pressures, the industry has gone through a radical consolidation through M&As and alliances. Shipping alliances enabled strategic capacity reduction when demand declined at the start of the pandemic and efficiently reactivated fleets when trading rebounded in 2H20. The three biggest alliances serve around 85% of the US-China routes, compared to about 60% seven years ago, and almost all east Asia-Europe lanes. The container orderbook, as a percentage of existing fleet, is now at its lowest level of below 10% – it was 57% in 2007.

Container shipping companies’ performance improved in 2020 due to higher freight rates in 2H20 – despite lower volumes yoy – and to prudent capacity deployment during the strictest lockdowns in 2Q20. We expect the 2021 sector performance to remain sound, with performances of individual container-shipping companies varying depending on their route mix, their proportion of contracted volumes and exposure to chartered fleet, and any further spending on container inventory. Improved profitability led to stronger leverage metrics in 2020.

Although container shipping companies performed strongly during the pandemic, we believe that the current shipping rates are unsustainable and expect them to moderate in the medium term once supply chain disruptions ease, as the industry is highly competitive. The sector remains subject to risks of geopolitical tensions and trade protectionism, uncertainty about economic recovery paths in different regions, as well as ESG-driven initiatives such as IMO 2020 and other emission regulations.
Source: Fitch Ratings

Source:Ocnus.net 2021

Top of Page

Latest Headlines
Suez blockage sparks box spot rate rally
Moscow Struggles to Improve and Extend Siberian Railways to Preserve China Trade
Syria: Defeat Pretending To Be Victory
Indonesia Plays Hardball With Its Nickel
Glencore divests Mopani Copper Mines in Zambia
The new China shock
Sky-high container spot rates spark emergence of 'dark side' of shipping
China’s Monopoly on Rare Earth Metals is a Critical National Security Risk
The man supplying France with 10% of its hashish: Profile of French drug boss Moufide Bouchibi
Suez Canal steps up efforts to remove blockage, shipping rates surge