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Container liners have begun 2017 in a positive mood and rates and earnings prospects are encouraging, if still somewhat fragile, says MSI.

Rates rebound and firmer demand delivered much needed boost to embattled containership sector, according to the[ds_preview] latest Container Shipping Forecaster from Maritime Strategies International (MSI). Each of the industry‘s drivers – demand, supply and earnings – have started the year in healthy shape. MSI expects the sector to move into the next quarter with a reinforcement of this encouraging trend.

In terms of demand, MSI notes that the global economy is operating on auto-pilot and should support continued trade and earnings growth. Demand trends are fundamentally positive in the US and the EU, and improved commodity prices will likely support an improvement in non-mainlane volumes.

Taken in isolation, January‘s supply-side data would be genuine cause for relief across much of the industry. Demolition volumes set a new monthly record, deliveries were minimal and ordering was restrained. If scrapping continues at its current pace, this will go some way toward reducing oversupply.

Despite the apparent good news, some perspective is necessary on the sector’s apparent recovery, says James Frew, Senior Analyst at MSI. »If 2016 marked the nadir for the market’s fortunes, 2017 appears much healthier, but there are important caveats«.

In terms of demand, dependable year on year growth of between 2-4% on the Asia-Europe and Transpacific trades would be welcome, but realistically constitutes the absolute minimum needed to absorb continued overcapacity. In terms of supply, deliveries of ultra-large vessels are soon set to increase, and we expect the fleet as a whole resume growth from Q2 onwards.

The above analysis leaves the sector’s rates and earnings outlook finely balanced. Freight rates data from January were strong, even accounting for the impact of an early Chinese New Year and MSI expects liner operators to continue to restrict capacity, leaving rates at similar levels as we move into Q2.

It also forecasts that T/C rates will pick up on the back of supply reductions and improved optimism. Post-Panamax rates could reach $9,000/day in Q3 and Panamaxes could reach $6,000/day over the same period.

In line with recent trends, MSI concludes that the most optimistic outlook for trades is those involving the US. This does, given the political climate, leave its demand forecast somewhat hostage to fortune, but absent a major shock or policy error Transpacific headhaul growth should continue at 2-3% and Transatlantic around 3%. MSI‘s analyst Frew expects Asia-Europe growth of 2% year on year over each of the next quarters, on the assumption of steady Eurozone expansion and an absence of a political shock in France.