Print Friendly, PDF & Email

Low global GDP growth and protectionist te[ds_preview]ndencies in some reasons make the Baltic and International Maritime Council (BIMCO) worry about 2017. On the other side, demand for container shipping grows and BIMCO sees an improvement of the market‘s »fundamental balance«.

In terms of global economic recovery, 2016 has been the year with the lowest GDP growth rate since the financial crisis began in 2009, BIMCO says. Amongst many landmark events, the slowdown for GDP growth in 2016 stemmed from weaker US activity in the first half of 2016, together with the UK’s referendum vote to leave the European Union. Although the International Monetary Fund (IMF) emphasised that the result of the UK referendum had been contained, the world saw an orderly repricing in the financial markets after the initial shock of the Brexit vote. The amount of uncertainty is mounting even though negotiations with the EU on how to leave have not yet started – which means the growth rate for advanced economies is likely to be only 1.6% in 2016.

BIMCO would not be surprised to see another downward revision of GDP growth in 2017. Currently IMF estimates the global GDP growth in 2017 at 3.4% (January 2017). »A pattern of downward revisions for GDP growth is scary when we look at what could have been put in place for the world to get back on track in 2016. So, which actions should have been taken to turn the tide? Reforming structures in societies and businesses, for one. Policy recommendations on key economic measures like: demand support, enhanced crisis management in the euro area, like fiscal consolidation plans and more widespread use of public investments etc. On the reforms mentioned some have been dismissed on populist agendas for being non-urgent. While others have been ›politically impossible‹ to pass. Political focus has been on very short term issues and the next election, and not on making the necessary changes to improve the foundation to reignite growth«, BIMCO says in a satetement.

Looking into 2017, BIMCO stresses the impact of a possible backlash against globalisation. If the growth and embracing of protectionist policies throughout 2016 becomes a reality, it may pose a huge threat to the shipping industry and could disrupt trade flows and limit economic growth.

Improvement in container shipping markets

According to BIMCO the demand for container shipping grew steadily in 2016, enough to improve the fundamental balance in the market in the second half of the year – though that was primarily due to decisive actions by shipowners selling excessive tonnage for demolition.

An early assessment of the overall market demand growth rate for 2016 is 2.5%. 2016 saw increased demand on all trades. Most importantly, trade grew on the Far East to Europe route that had experienced a decreased level of demand in 2015. The gap is still not closed, as nominal import volumes in 2016 failed to surpass those of 2014.

The demand for containership capacity, on the other hand, as evidenced by the very low charter rate levels, showed a total mismatch between demand for and supply of ships for charter. Charter rate levels since mid-November for ships with a capacity between 700–8,500 TEU have been between 4,700–8,000 $ per day, according to Harper Petersen & Co. Owners only seek short term charters (3-9 months) when market conditions are bad to avoid being locked into low rates for a longer term.

The level of idled capacity has been high since the end of 2015, reaching a new all-time high in Q4-2016, BIMCO reports. In the final weeks of 2016, some idled ships were reactivated while others were sold for demolition. By 9 January 2017, the total idle fleet was 351 ships with a combined capacity of 1.4m TEU (source: Alphaliner), equal to 7.0% of the fleet.

As BIMCO forecasts a container shipping market where the nominal (excl. reactivated ships) TEU-inflow of supply matches demand growth; keeping 1.4m TEU out of the active fleet going forward will be a minimum requirement to keep the pressure off freight rates.