17 July 2017, Global – The global container shipping sector has been plagued by industry oversupply in recent years, with the average monthly capacity growth running at 10% y/y in the past 20 years. As we have passed the half year mark of 2017, we take stock of the sector’s latest supply growth trends. Our key positive takeaway is that the global container shipping industry has been exercising significant restraint on the supply side year-to-date, notwithstanding the higher freight rates and improving global trade demand growth. This is likely because memories of significant losses incurred last year are still fresh and industry consolidation is gathering pace. The global containership fleet capacity grew only 1% y/y ytd to 20m TEUs and more encouragingly, the newbuild vessel orderbook-to-fleet ratio has fallen to a 20-year low level of 14%. The last time the sector’s orderbook-to-fleet ratio reached such low levels was twenty years ago during the Asian financial crisis.
GLOBAL CONTAINER SHIPPING CAPACITY GREW ONLY 1% Y/Y YTD
The global containership fleet capacity grew only 1% y/y ytd to 20m TEUs which is positive for the sector.
Chart: Global containership fleet capacity growth (1997 to 2017)
GLOBAL CONTAINERSHIP ORDERBOOK-TO-EXISTING FLEET RATIO HITS 20-YEAR LOW, A LEVEL NOT SEEN SINCE THE ASIAN FINANCIAL CRISIS
The current global newbuild containership orderbook amounts to only 14% of the global existing containership fleet capacity (in TEU terms), the lowest level we have seen in the last 20 years. The last time the global container shipping sector’s orderbook-to-fleet ratio reached such low levels was twenty years ago during the Asian financial crisis.
Chart: Global containership orderbook-to-fleet ratio (1996 to 2017)
NEWBUILD VESSELS ORDERING MOMENTUM HAS DROPPED MARKEDLY
Only 17 newbuild vessels with a total capacity of 39.4K TEUs have been placed during the first half of this year. This amounts to half of the newbuild capacity ordered in 1H2016 in TEU terms which reduces the risk of protracted industry oversupply. These newbuild contracts are largely for smaller vessels, with an average size of 2.3K TEUs.
Chart: Newbuild containerships ordered (1997 to 2017)
MORE VESSELS HAVE BEEN SCRAPPED YTD COMPARED TO THE SAME PERIOD LAST YEAR BUT THE MOMENTUM IS EASING
93 containerships were scrapped in 1H2017, removing 279K TEUs (or 1%) from the global container shipping capacity. This was 4% higher than the level of vessel scrapping in 1H2016.
However, vessel scrapping momentum has decelerated in the recent months given the improving global trade demand and higher freight rates. Moreover, the overall global container shipping fleet is young, averaging only 11 years old. We therefore do not expect significant vessel demolition going forward, returning to a more typical fleet replacement rate given the low fuel price environment, especially if freight rates recover further.
Chart: Global containerships scrapped (1997 to 2017)
GLOBAL CONTAINER SHIPPING DEMAND-SUPPLY GROWTH BALANCE IS IMPROVING
The chart above shows our projected global container shipping demand and supply growth from 2017 to 2020, in addition to the historical container shipping demand and supply growth and global idle fleet ratio trend. We have also included the movement in freight rates using the China Containerised Freight Index as a proxy to illustrate how freight rates have moved in relation to changes in the global container shipping industry’s demand and supply growth.
Overall, we project the global container shipping sector demand to grow 3.9%, ahead of the global shipping net capacity growth of 3.4% in 2017. This will help to absorb part of the industry oversupply accumulated in recent years and help to support freight rate recovery.
As the global industry supply growth is expected to remain fairly moderate at 3.6% in 2018, it is likely to be matched by our projected global container shipping demand growth of 3.6%.
2019 is likely to be a strong year for freight rates and earnings for the global container shipping sector, with global industry supply rising only 1.8% versus demand growth of 3.3% based on our forecasts, unless a significant number of vessels are ordered going forward.
Chart: Global container shipping demand and supply growth and idle fleet ratio versus freight rate growth
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