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POSITIVE SIGNS FOR SHIPPING LINES

Dec 02 2016

According to Drewry Maritime Financial Research, the container shipping industry’s response to lower demand and excess vessel supply and operational consolidation through bigger alliances were positive things to consider. It is expected that the industry pricing is on the cusp of a turnaround after years of neglect, the bottom of the freight market has been reached and the corner is being turned. Drewry said early indicators suggested contract rates for 2017 would increase from the depressed levels of 2016 and, on the Transpacific trade, this would likely mean the first contract rate increase since 2010.

However, the analyst also warned that the container shipping sector faced multiple headwinds. Although financial markets were currently “giving undue importance to noise of rising trade protectionism whereas ignoring fundamental improvements in the container shipping sector”, Drewry said a new phase of low growth beckoned despite recent demand gains.

“Changing demographics as well as labour productivity and structural changes are impacting long-term demand growth,” said the note. “Subdued demand for global trade is also indicated by several other factors such as structural decline of capital goods and investment spending, rising protectionism, currency wars, near shoring, miniaturisation, saturation of container penetration, and muted recovery in consumer spending. 

“Global demand is transitioning to a lower band and the GDP trade model is definitely under threat.”

Drewry said an important question that remained unanswered was whether shipping and world trade would dominate in the new Industrial Revolution 4.0 as it had in the era of globalisation. “We see clear evidence of shipping volumes being disrupted by the digital economy and technology,” said the analyst. 

“We see benefits of ‘Economies of Scale’ disappear, enabling ‘low volume manufacturing’ leading to more ‘near shoring’ and ‘bespoke production’. 

“We believe world trade is not falling off a cliff, but most indicators do suggest that trade growth will remain weak for the foreseeable future.”

Drewry also said that although it could not fully factor in the detrimental effects of the highly restrictive trade policies of the US President Elect, the “key poll promise was a massive 45% tariff on the goods China sends to the United States”.

The note added: “That would be highly negative to Chinese exports to the US. We believe the probability of that happening in entirety is low but if it were to happen, it would sound a death knell for global trade in general and container shipping in specific.”

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