13 Dec What will 2017 Bring for Containerized Shipping?
Almost 12 months ago, I penned an article with this exact topic ending with the following statement, “It looks like rates will remain under pressure as we enter the 2016 contracting season; and, as we have learned from the past, in liner shipping, the only constant is change”.
2016 did prove to be a change filled year indeed!
Each month of 2016 brought shippers news of further consolidation and structural changes to the ocean carrier industry. This year saw several carrier’s operations come together as Cosco and China Shipping merged and CMA’s takeover of APL, started operations. We also received notice of 3 future business combinations with the merger of Hapag Lloyd with UASC, the purchase of Hamburg Sud by Maersk and the business combination of the liner activities all three of Japan’s liner carriers: NYK, K-Line and MOL. In August, the liner industry witnessed its largest bankruptcy with Hanjin Shipping halting operations. These mergers and acquisitions further led to global reorganization of or carrier Alliances planned to take effect in 2017. Another key change for carriers in 2016 was the opening of the newly enlarged Panama Canal, allowing larger ships to reach the US East Coast.
With so much change already in motion, many wonder what other changes 2017 may bring. While most shipping lines have already been involved in merger discussion, a number are still the topics of speculation. Many industry insiders suspect that OOCL, Yang Ming, Zim and Wan Hai will also become players in the consolidation sweeping the industry.
The key drivers of consolidation remain present in 2017. While it is probably too early to accurately predict overall containerized traffic demand for 2017, most believe that demand will continue a tepid pace of low single digit growth. Conversely, carriers will continue to see increased capacity in 2017 as ships ordered in past better times are delivered in the coming year. Despite an already significant idle fleet, supply continues to outpace demand which will continue to put pressure on rates. Despite a run up in short term rates due to the Hanjin bankruptcy which came in the throes of peak season, it appears carriers will stiff face headwinds in their quest to raise rates in 2017.
Given the uncertainty of the global macro-economic climate and the pending changes in US Government policy brought about by the presidential election, it seems impossible to predict significant short term increases in containerized demand in 2017. While the supply and demand situation seems to favor shippers, the underlying pressure on rates noted in 2016 does show some signs of moderation given the effects of consolidation and the continued lack of profitability in the carrier industry. Carriers will start 2017 with bunker prices at levels almost double the prices in January 2016.
We expect some disruption in trade patterns as carriers transition and cascade ships into their new alliances. On a positive note, the opening of the enlarged Panama Canal and the new Alliances look to have improved the product offering to the US East and Gulf Coasts.
It looks like 2017 will be another year of change!