Last week our review of the bulk sectors speculated on when the ‘fat lady’ might sing to mark a turn towards better times. In 2013, the same old song played in the liner shipping sector. Global container trade, led once again by intra-Asian volumes, grew by 5.0%, whilst fully cellular capacity expanded by 5.5%. But whilst fundamental growth rates were roughly in kilter, the industry was still dealing with the capacity surplus created by the downturn, even if widespread slow steaming across the liner network continued to absorb significant amounts of surplus capacity.
Down The Scales
Across 2013 container freight remained volatile as liner companies continued to battle hard with capacity management in the face of significant containership deliveries of 1.3m TEU. Although at points in the year service withdrawals enabled liner companies to push through rate increases on a temporary basis, the SCFI index averaged 1,078 across the year compared to 1,254 in 2012, and liner profit margins remained restricted (or negative), with those able to drive fuel efficiency and work on their cost structure faring the best.
Same Old Song
The charter market remained in the doldrums with little separating timecharter rates across a range of sizes and earnings pushed down towards operating costs. The timecharter rate index increased marginally from an average of 43 in 2012 to 46 last year, but that’s still way below historical averages, and increasingly unpopular Panamaxes suffered further. With continued idling of boxships, and cascading of larger vessels into the traditional charter market arena, 2013 offered little respite for charter earnings (or asset prices).
So, when will the liner sector dance to a different tune? Well, the orderbook, despite substantial ordering of 1.8m TEU in 2013, looks more manageable than previously at 22% of the fleet, and in many sizes is very thin indeed. Meanwhile, the fleet below 4,000 TEU has been shrinking since 2012. On the demand side, trade growth in 2014 could increase to surpass capacity expansion once again, with the Far East-Europe and Transpacific trades at last returning to positive trade growth territory in the second half of 2013.
Elevated levels of demolition (0.43m TEU in 2013) are also helping, and the likely slowdown in cascading in the medium-term should eventually offer the charter market some protection at last. But don’t expect a rapid change of key; there are plenty of risks out there, and current surplus and idle capacity will take some time to work through before the liner sector can sing a happier song.