Container Shipping

Demand drivers and freight rates

Container shipping has in the last few months felt the effects of the trade war digging in, as global container volumes continue to see very sluggish growth, now standing at 1% in the first nine months of the year. This brings the total volume of containers shipped this year to 126.3 million TEU, up just 1.3 million from the corresponding level in 2018. All this compares with the 3.8% growth at this time last year, or an additional 4.6 million TEUs.

Frontloading at the end of last year, ahead of planned tariffs hikes on US imports from China, led to higher volumes as well as higher freight rates. Since February, volumes between the two countries have been consistently lower than last year. US containerised imports from China in tonnes are down 7.3% in the first nine months of the year.

Despite the fall in volumes from China, total containerised imports out of Asia have grown so far this year, albeit only just. Volumes are up 1.1%, compared to full year growth of 6.5% in 2018. 2018 growth was pulled up at the end of the year due to the frontloading.

In particular, volumes to the USWC have suffered, where laden container imports are down 1.5% in the first nine months of the year, according to BIMCO’s own data. Exports have also fallen by 4.2%.

The continued, albeit modest, growth in US imports from the whole of Asia reflects a reshuffling of exporting nations that has occurred in the Far East. This has manifested itself in two ways:

• First, the trade war and added tariffs on goods from China has speeded up the process – which had already begun – of some manufacturing moving away from China in favour of its neighbours with lower labour costs.
• Second, the trade war has led to products, still being produced in China, being transhipped through neighbouring countries to change their country of origin and thereby avoid additional tariffs when they arrive in the US.

Despite these developments, volumes on intra-Asian trades year are flat in the first nine months of 2019 compared to the same period in 2018 . The boost that could have been expected from shifting manufacturing and transhipment has not come to the shipping industry, which instead is feeling the pressure from slowing overall exports from the region. This may be because transhipped volumes are primarily being transported by land from China into neighbouring countries before being put on a ship.

Intra-Asian volumes provide an insight into how volumes out of Asia will develop, with lower volumes already putting pressure on freight rates on the major routes. The overall CCFI fell to its lowest level of the year with a reading of 776.9 on 18 October 2019, although by 8 November it had risen to 808.93.The sub-indexes covering Europe, as well as both the East and West US coasts, where the usual peak season has failed to materialise, have performed particulary poorly.

Note: The Shanghai Containerised Freight Index (SCFI) shows the fluctuation of spot freight rates for containerised exports out of Shanghai and is reported in USD/TEU. The China Containerised Freight Index (CCFI)is an index which reflects the overall freight level, rather than just spot rates and covers a broader range of ports.

On these routes, both the CCFI and SCFI are down from where they were at the same time last year, when they were buoyed by the frontloading ahead of the tariffs. As evidenced by the falling inventory/sales ratio in the US (see macroeconomics section), retailers there have not been stockpiling to the same extent as they usually do in the lead-up to the Christmas period, causing volumes and freight rates to disappoint.

Despite slowing growth and lower freight rates, charter rates for container ships, especially the largest vessel sizes, remain elevated. This is partly due to these larger ships leaving the market for scrubber retrofits. Rates for an 8,500 TEU vessel have been standing at USD 30,000 per day for the past 11 weeks. This is a sign of weakness, as it indicates that demand has stalled; BIMCO expects to see lower charter rates in the coming months. Charter rates for a 6,500 TEU vessel, after five weeks at USD 26,000 per day, have already fallen slightly, standing at USD 25,000 per day on 8 November 2019. Charter rates for smaller vessel sizes remain more subdued.