Container shipping market continues to depend on Red Sea reroutings, BIMCO says

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BIMCO now predicts that normal shipping routes through the Red Sea and Suez Canal will not resume until 2025.

The Baltic and International Maritime Council (BIMCO) has updated its projection for when ships might return to their regular routes through the Red Sea and Suez Canal.

In BIMCO’s earlier report, it was anticipated that reroutings would affect only the first half of 2024. However, due to the lack of any resolution signs, the current scenario now assumes that the entire year of 2024 will be impacted, with normal routes expected to resume in 2025.

Figure 1

Combined with estimated global volume growth of 5.0-6.0% and growth in head-haul and regional trades of 5.5-6.5%, demand for ships is growing very fast in 2024, whereas volume growth in 2025 will not be enough to counter the drop in ship demand caused by the assumed return to normal routings (Figure 1).

Though growing slower than demand, supply will also grow fast in 2024 as deliveries of new ships are expected to hit a new record high of 2.8m TEU. Faster sailing speed due to the reroutings via the Cape of Good Hope also adds to supply growth while increasing congestion in several transhipment hubs tempers growth slightly.

Overall, 2024 will therefore see a much stronger supply/demand balance than in 2023. However, due to the relatively weaker first half of 2023, demand growth is estimated to be higher during the first half of 2024 and lower in the second half.

Furthermore, BIMCO estimates that some volumes from the normal peak this year will move in Q2 rather than in Q3. Therefore, BIMCO expects the supply/demand balance to begin to weaken during the second half of the year but remain stronger than during 2023 throughout the year.

If ships can sail normally via the Red Sea and Suez Canal throughout 2025, BIMCO forecasts that the supply/demand balance will weaken significantly compared to 2024 and could potentially be even weaker than during 2023.

Market indicators confirm the strength of the market during the first half of 2024. Time charter rates in June are up 113% compared to the end of 2023 (Figure 2) as liner operators have attempted to find the ships needed to accommodate the longer distances via the Cape of Good Hope.

Figure 2

The Chinese Containerised Freight Index (CCFI), measuring average freight rates for Chinese exports, is 90% higher in June than at the end of 2023.

Asset prices have also climbed upwards but not to the same degree. In May, second-hand prices were 10% higher than at the end of 2023. Considering the strong market, sales and purchase activity have remained relatively low as it has increased only marginally compared to the first half of 2023.

According to BIMCO, it likely reflects that liner operators are fully aware of the looming excess capacity once routings can return to normal and therefore focus on time charters to increase capacity rather than buying tonnage.

Though the order book of container ships has fallen by 1.7m TEU since peaking mid-last year, newbuilding prices have continued to increase and year-to-date have increased 12%.

New orders for tankers have helped the global order book continue to grow and this has driven prices up.

Shipyards’ estimated forward cover (order book versus capacity) is at its highest level since 2010 and as a result, ships ordered now will, with very few exceptions, only be delivered in 2027 or 2028. Year-to-date, two-thirds of the container capacity ordered is scheduled for 2027 delivery and 23% is scheduled for 2028 delivery.

Looking ahead, BIMCO expects freight rates and time charter rates to follow the predicted supply/balance development, ie begin to weaken during the second half of 2024 and weaken further during 2025. Secondhand prices should follow a similar pattern whereas newbuilding prices will largely be depending on contracting activity in other sectors.

Risks to BIMCO’s demand forecast remain. The escalation of trade disputes between the EU, the US and China is a potential cause for concern. If inflation and interest rates in the US and EU do not come down as expected, consumers and businesses will likely suffer, resulting in lower volumes.

“On the other hand, 2024 could end stronger than we forecast if the third quarter peak remains as strong as normal,” BIMCO concludes.

Read the BIMCO Container Shipping Market Outlook & Overview June 2024 HERE.

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