Thursday, October 7, 2021

World Shipping Trends Bring Good and Bad News for the Container Markets

Watch Out for the Regulators as Christmas Approaches
Shipping News Feature

SOUTH KOREA – WORLDWIDE – OK so it may be not the biggest order for new container vessels but the fact that Hanjin Heavy Industries and Construction has received its first major merchant fleet order for six years is a bellwether for the current state of the ocean shipping industry.

The oldest national, and once prolific yard, has scraped by of late on subsidised government naval orders since the demise of Hanjin Shipping, a sister company that rocked the group to its foundations. Confidence was lost along with future business but the sale to the Dongbu Corporation earlier this year has meant a sea change for the future.

Dongbu is a big local hitter in the civil engineering and construction fields and has secured the $260+ million order from an as yet unnamed European shipping line. The ships, four ‘environmentally friendlier’ 5,500 TEU vessels are to be delivered within just over two years.

The deal is a sign that the financial health of the ocean freight trade, not just the ship builders, is vastly improved. The two go hand in glove and the fact that many of the box lines have already improved their financial forecasts indicates just how the market has changed.

When Hanjin Shipping collapsed in 2016 it was as a direct result of overcapacity in the trade. Freight rates had therefore slumped and the weight of a near $5.5 billion debt was simply too much for the national line and its backers. The demise of Hanjin meant that HMM, another Korean box carrier survived and went on to join The Alliance, Ocean Network Express (ONE) in 2020.

How different the situation today as shippers scream about vastly inflated rates and extra surcharges added to their bills, seemingly in a random fashion. The Covid 19 pandemic has affected every part of trade with the slowing of offloading and reloading vessels causing huge backlogs at ports worldwide.

A look at any of the global analysis websites which measure the box trade shows a huge spike in rates. Last month Xeneta’s Long-Term XSI® Public Indices showed a 2.2% increase in August and an unprecedented 28.1% jump in July, leaving rates now standing 91.5% up year-on-year.

The average composite index of the WCI, assessed by Drewry for year-to-date, is $6,977 per 40 foot container, which is $4,547 higher than the five-year average of $2,430 for such a box. The composite index stood 291.8% higher than a year ago and the Shanghai – Rotterdam spot rate is currently an astonishing 535% up against the same time in 2020!

With the lines showing no signs of reducing rates any time soon, and the capacity offered by new builds taking time to filter down and reduce the pressure, assuming the ports can get back to some sort of normality, it may well mean the global authorities taking a long, hard look (again) at the competitiveness of the sector, the depressed state of which led to that plethora of alliances we witnessed not so long ago.

With the Federal Maritime Commission ruling on unfair demurrage and detention charges for containers just last month it is a fact of history that when the lines cooperate and thrive the spectre of collusion and cartels rise like Banquo’s ghost before the international regulatory authorities. The older reader will recall the Conference Lines being cut off at the knees in the 1960’s, but regulatory actions against shipping conferences date back to the 1800’s.

One spark of light for consumers may be induced by that very innate panic which rises in their minds as soon as a supply chain interruption is mentioned. Whilst such occasions may often lead to trauma and artificial shortages, as anyone with a car in the UK last week can tell you, the rising fear of a depleted Christmas has already started a rush to buy up supplies of a festive nature, fully three months before the event.

This trend may well leave plenty of time for extra goods to be produced and shipped in time to arrive before the celebrations meaning a more even pattern of purchasing in the lead up to the big day. Doesn’t mean you’ll be shipping them at a lower rate though!