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Published: 26 April 2017      

False dawn for box shipping

In his keynote address at the TOC Container Supply Chain Asia conference in Singapore this week, Tan Hua-Joo, executive consultant at Alphaliner, said that despite Hanjin’s bankruptcy and the high level of scraping last year, he does not see container shipping achieving a supply/demand balance before 2019.

Mr Tan told delegates that despite 2016 being the “most balanced year in terms of supply and demand since 2009”, with a global fleet growth of just 1.6%, that “hopes on the part of carriers for greater stability are still some time away”.

Shippers may have been scarred, but less than a year after Hanjin’s demise the event “is now largely forgotten” in terms of its impact on capacity in the market, Tan said. He expects that by the end of May most of its tonnage will actually be back in service. Furthermore, the slower growth in the vessel fleet last year was also something of a false dawn, as much of the new tonnage on order has only been delayed and will find its way into the market in the next two years.

Tan also poured cold water on the notion that consolidation would lead to stability in freight rates, noting the market is still waiting to see any real impact from the Hapag-Lloyd/UASC deal and the merger of the three Japanese carriers. Instead, sees signs of aggressive pricing from the Japanese carriers as they try to build market share going into 18 months of negotiations on a merger where there is no clear leader. To top it off the new SM Line formed from the ashes of Hanjin is also pricing aggressively. 

“As long as there remains competition and fight for market share, we are not seeing the stability that analysts are hoping for,” Tan said. As a result spot rates have fallen since January and are still on the decline. There is significant volatility going forward, despite the new alliances.

By the end of next year, the top seven lines will control 70% of capacity, but “unfortunately I think this is still not enough” Tan said. Whether there will be further consolidation though is unclear. Looking at carrier rankings the top six names outside of the three Alliances are all consolidation targets, “but very few of them are attractive’, Tan declared. 

The most talked about target is OCCL, but he cautioned that a deal might not happen as soon as the market thinks, as the owners are not likely willing to sell in the current market. Yang Ming, HMM, PIL, ZIM and Wan Hai rounded out his list of six potential targets, but Tan thought deals unlikely as they are all “ unattractive names”.

At the same time Tan did not see any further carrier bankruptcies on the horizon, describing the blunder by the Korean Government that lead to Hanjin’s demise as “an aberration that will never be repeated again”. For the next 18 months Alphaliner expects it will be “business as usual” with peaks and troughs like some lanes have seen this year, but it will not be till 2019 that the fundamental problem of over supply starts to come down. 

Tan's analysis was not what carriers want to hear, and Robbert van Trooijen, head of Maersk Line for Asia-Pacific, claimed that 2017 would in fact be the year where the market achieved some sort of balance. 

Van Trooijen argued that on the transpacific, Asia-US east coast and Asia-North Europe trades capacity was actually more in line with demand than Mr Tan suggested. “It depends when the comparison is made. On Asia-US east coast, there was 148,000 TEU deployed at the height of capacity last year, and although it has been growing since Hanjin’s bankruptcy it is now at 144,000 TEU per week. 

“The transpacific trade is showing a similar pattern and if you compare the capacity on Asia-North Europe in January 2016 with the anticipated deployment in December this year – even with the newbuildings coming in – it is 240,000 TEU per week compared to 237,700 TEU”. The comparison, however, overlooks that these markets were over supplied in 2016, and freight rates subsequently plummeted.

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