Container Outlook: Lunar New Year to Boost Spot Rates

 Mike King,  American Shipper, January 4, 2020


December slides in container spot rates could give way to higher rates on mainline trades, according to Maritime Strategies International, or MSI.

Carriers achieved success with GRIs and aggressive capacity management at the start of November, but spot rates then retreated.

“We expect Asia-Europe rates of $930/TEU [twenty-foot equivalent units] in January and trans-Pacific spot rates (weighted average USWC+USEC) of $1,860/FEU [forty-foot equivalent units],” said the analyst.

“Sentiment in the time charter market has slipped in recent weeks, although earnings remain broadly stable. The near-term outlook for most vessel benchmarks is muted, but a slow pipeline of vessel redeliveries should limit downside risk.”

According to MSI, demand growth on the Asia-Europe westbound trade was negative in September (-3.4% year-on-year). “With 10 months of data the Asia-U.S. eastbound trade is 0.5% higher year-to-date, and volumes shrank by -10.9% in October,” said the analyst.

“We expect a muted pace of expansion on the Asia-Europe headhaul in the coming quarters, although volume trends will be distorted by the timing of the Chinese New Year. Volumes will be higher in January and lower in February.”

Looking ahead, MSI forecasts growth of 2.0% on the Asia-Europe westbound in 2020, following growth in 2019 of 3.5%, and growth of -1.2% on the trans-Pacific eastbound in 2019 with Asia-U.S. growth of -2% partly offset by marginal positive growth to Canada.

“While risks are weighted to the upside, this will likely be a pace of growth that liner companies will find challenging to navigate given ULCS [ultra large container ship] deliveries to MSC, CMA CGM and HMM,” said the analyst. “Given both this factor and the impact of IMO 2020, the annual ‘relaunch’ of the alliances’ offerings in April could see lengthened rotations and increased ‘buffer’ time. Port connectivity could suffer.”


Habben Jansen Sees Up to Two Years' Market Balance

The balance between supply and demand on the container market has gained a momentum that could last for the next few years, Hapag-Lloyd CEO Rolf Habben Jansen says in an interview with ShippingWatch. One factor above all will keep supply low.

BY TOMAS KRISTIANSEN, DANIEL LOGAN BERG-MUNCH, Shipping Watch,   Published: 06.01.20 


Photo: PR / Hapag-Lloyd


The container industry is in an unusually advantageous situation at the start to 2020, which could possibly stretch across the next couple of years.

At least, that is the view of Hapag-Lloyd CEO Rolf Habben Jansen, who reckons that the market balance that took place in earnest in 2019 following years of imbalance might well last until 2022.

Habben Jansen thinks the balance between supply and demand is highly attributable to consolidation in the industry, which has seen a cut in its number of players, both in terms of shipping lines and of alliances. But it is also tied to the fact that the container industry has long been making investments that could not yield sufficient returns.

ShippingWatch has interviewed Habben Jansen on the perspectives for the sector, on how Hapag-Lloyd plans to position itself among competitors and on whether the liner company can keep on dialing up efficiency.

It seems that the container carriers in 2019 were finally able to live up to the discipline not to order a lot of new ships, to blank sailings and cancel services in order to maintain sustainable or even profitable rates. What happened?

"We have seen fewer orders these past years, which is certainly partly due to the consolidation, but also because there is limited appetite to invest significant amounts of money into an industry that has a very poor track record in returning its cost of capital. The latest wave of consolidation has led to a historically low order book, a tighter balance between supply and demand, and less volatile freight rates. We can also see that many liner shipping companies have done a lot to boost efficiency, which has partly been passed on to the customers. Despite all of this, we still struggle to return our cost of capital – and also with the new IMO 2020 rules kicking in this year, the outlook remains nevertheless challenging, even if supply and demand will likely be more balanced in the years to come."

This new balance of supply and demand, how long could it last?

"This is always a bit like looking into the crystal ball. However, market experts see an increase in supply of around 4 percent by the end of 2020, which does not include IMO 2020-related capacity adjustments, yet due to longer yard stays for scrubber conversions, for example. Due to the historically low order book of only 11 percent combined with an expected increase in scrapping, we assume that supply growth will remain modest in the medium term. Demand is supposed to grow by around 3 percent by the end of 2020, so overall it seems like supply and demand will remain fairly balanced for the next few years."

How did Hapag-Lloyd contribute to maintaining this balance during 2019?

"We made a number of changes in the way we manage capacity over the last years. We have, for example, not ordered or scrapped any vessels recently, and we are taking a very thorough and close look at the efficiency and profitability of our services network on a regular basis. If a service isn't profitable, we prefer to reduce capacity or discontinue this offering rather than to sustain losses for the sake of gaining market shares."

How can Hapag-Lloyd stand out among its competitors in 2020?

"We will continue to focus on what we know how to do best: operate ships and provide great service – on a Port-2-Port and Door-2-Door basis. We won't integrate a freight forwarder because, among other reasons, we believe that one of their important value propositions is to offer alternatives between lines, which makes it, in our view, rather challenging to compete effectively if a forwarder is owned by a carrier. We prefer to count on our strong and proven relationships with experienced partners. Finally, with our Strategy 2023, we are hoping to build up further capabilities within Hapag-Lloyd that our competitors will find difficult to copy. We may not be the largest liner shipping company, but we have nevertheless reached a sufficient size to be cost-competitive while remaining agile."

When HMM joins The Alliance, how will you be able to absorb the, above all, huge vessels in the alliance? Is slow steaming considered an option?

"One of the basic principles within The Alliance is that the overall capacity that partners provide and require should match. When it joins The Alliance on April 1, 2020, HMM will be supplying modern and efficient vessels but will also take allocation on services where they provide no or fewer ships. The Alliance has been able to streamline its product further by not only adding bigger tonnage, but also by further optimizing the product in order to serve customers even better in 2020."

The new cost-savings program that you will launch in March, will it be just as extensive as the current one?

"We are well on track to achieving our cost-saving targets of USD 350 to 400 million, which is why we have decided to explore additional cost-reduction potential and opportunities. This will be more of a continuation of our successful cost-management efforts than a completely new program. However, we are thoroughly analyzing the range of available measures now, and we will be able to provide more detailed information within the next couple of months."

It seems that “optimized network” and “container steering” have already delivered 90-95 percent of expected savings and procurement 70 percent. Why have “terminal partnering” and “collaboration” only delivered 20 percent of the goal?

"Not all projects have the same implementation time, and some take more time to capture the benefits. Some initiatives can be implemented more quickly, or they allow you to benefit quickly from low-hanging fruits. Others involve third parties or cooperation partners, which usually increases the scopes and complexities of projects, so they pay off in the longer run."