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Factors That Will Control Future Container Shipping Market

This year, the container shipping market has seen a depression that is worst ever in history, while countless shipping-related organizations do not see a brighter future for the market. Looking at the factors that will drive the container shipping market for next several years, one sees more of negative than of positive factors. Major factors can influence future container shipping market. While the establishment of low growth for global economy and the start of a medium-growth Chinese economy virtually rule out any drastic increase in container cargo volume for export and import, oversupply will be aggravated by continuous increase of ultralarge vessels of minimum 18,000 TEU and the completion of Panama Canal expansion.

Low growth for global economy

Lately, the multiplier between global economic growth rate and the container cargo volume is dropping continuously. In 2006, with global economic growth rate at 4.2% and cargo volume increase rate at 11.2%, the multiplier was 2.7. In 2010, with global economic growth rate at 4.3% and cargo volume increase rate at 13.1%, the multiplier amounted to 3.1. And in 2016, with global economic growth rate at 3.3% and cargo volume increase rate at 5.4%, the multiplier will sharply drop to 1.6 (Clarkson, IHS). This means that even if global economy recovers, the container cargo volume is not going to increase as sharply as it did before by a long shot.

The multiplier effect between global economic growth and container cargo volume increase
The multiplier effect between global economic growth and container cargo volume increase

An era with a medium-growth Chinese economy

Since the first quarter of 2013, China, the largest customer for the global shipping market, had kept its economic growth between 7% and 8%, which dropped to 6.9% in the third quarter of this year, thus showing that its economy entered the era of medium growth. Especially, Chinese export continued to dwindle except in February, registering a significant slowdown in the container cargo volume for North American and European routes.

According to Clarkson and Zepol, Chinese container cargo volume for export increased 6.3% for North American routes and 6.9% for European routes in 2014. As of August, however, it grew only 2.3% for North American routes while decreasing 4.1% for European routes.

North America Europe
2011 8,114 9,921
2012 8,234 9,530
2013 8,496 10,164
2014 9,030

Increasing ultralarge vessels and cascading aggravate oversupply to market

On the supply side, ultralarge vessels’ continuous entry into the market is aggravating oversupply. Especially, the cumulative number of ultralarge vessels of minimum 18,000 TEU was estimated to be 35 in 2015, 48 in 2016, 73 in 2017, 106 in 2018, and 111 in 2019. Furthermore, the tonnage of delivered vessels of minimum 12,000 TEU is estimated to be 800,000 TEU in 2015, 500,000 TEU in 2016, 600,000 TEU in 2017, 320,000TEU in 2018, and 90,000 TEU in 2019. Due to such large cumulative tonnage of ultralarge vessels, oversupply is not going to be eliminated or alleviated for the time being.

Besides, the completion of Panama Canal expansion is expected to trigger cascading chain reaction. Particularly, we expect the full-swing transfer of 8,000 TEU to 10,000 TEU vessels from European to North American routes. This will in turn trigger cascading from North American routes either to North/South routes or to intra-Asia routes, further aggravating the oversupply to entire container shipping market.

2015 2016 2017 2018 2019 Total
2M 26 11 10 4 51
O3 9 2 3 12 26
CKYHE 17 5 22
G6 12 12
Total 35 13 25 33 5 111

Balancing demand and supply unlikely in the short term

For next several years, demand and supply is not likely to be balanced for the ocean shipping market. Moreover, it is not likely that the tonnage of ordered and delivered ultralarge vessels of minimum 18,000TEU will remain at its currently verified level. It seems that those carriers which belong to shipping alliances have no choice but to get ultralarge ships. Therefore, even when the tonnage of dismantled vessels is taken into consideration, demand and supply for the ocean shipping market isn’t likely to be better balanced than now.

However, there is a chance that demand and supply will be better balanced in 2019, provided that the number of ordered vessels does not increase beyond its current level while demand continues to grow at the current rate. This means that one cannot expect recovery of freight rates until 2019.

New strategy other than cost reduction is necessary

Mindful that depressed market is likely to continue for an extended period, global container carriers need to explore new strategies instead of sticking to their current business strategy. Cost reduction should no longer aim at no place left to squeeze. Now is the time to reduce costs with a ship operating system that taps into eco-ship and ecotechnology.

Moreover, we must act urgently to edit the current business portfolio that focuses on North American and European routes. Attention must be given to the fact that Maersk and others, which have run a surplus in the face of depression, have done so by appropriately taking advantage of the strengths of the trunk-and-feeder system.

Author: Jeon Hyeong-jin, Shipping Market Analysis Center Director
Source: KMI Shipping Market Trend Focus, No. 277