Next year's outlook for container lines remains clouded but it is unlikely that 2021 will be as profitable for carriers as this year has turned out to be.
“What has benefited demand in 2020 is that fact that consumers could not spend money on services and instead spent what they had on containerised goods,” BIMCO chief shipping analyst Peter Sand said in his latest outlook for the sector.
“This was boosted by stimulus plans where in Europe consumers were protected from downside risk of Covid-19 by having salaries paid by governments, and in the US where there were pay-outs of $1,200 and extra money for unemployment schemes.
“The effects of these are now running out, and although more stimulus is much needed, that is unlikely to come until the new administration takes over in late January.”
Despite the record volumes seen imported in the US during the third quarter, overall volumes for the year remain down. US west coast imports were down by 4.4% and the US east coast by 4.3% during the first nine months of the year.
Restocking and low inventories were still ongoing on the transpacific, maintaining high volumes, not only because of the holiday season, but because of strong demand earlier.
But many of the goods that had been carried to the US and Europe were consumer durables.
“You’re not going to buy those things again and again,” said Mr Sand. “That is a one-off in many ways. But not everyone has equipped their home office or home gym. There is still room for more of that but at a certain point in time you cannot repeat that.”
With the recent announcements of a number of successful vaccine trials, there was some hope of a return to normality next year, but this would not necessarily aid the container shipping sector.
“There is pent-up demand for services and it is likely that more money will be spent on services as soon as there is the opportunity to do so,” he said. “This is a negative for container shipping.”
Moreover, any return to previous trends would see a return to the multi-decade decline in containerised freight, he added.
“The GDP-to-container-demand multiplier had already fallen to around one, meaning that if global economic activity grows by 2% so too do container volumes,” he said. “That is significantly down from the 2000-2008 period and also from earlier in the past decade. We expect those trends to stick around.”
On the positive side, however, contract rates, where carriers make the bulk of their revenue, where likely to be better in 2021.
“Spot rates have delivered an upside and the best of it could be yet to come when we see the renewal of contract rates,” Mr Sand said. “This is due to the fact that the alternative, staying in the spot market, is so much more expensive. It is better to pay a higher contract rate than to have to compete on the spot market.”
Nevertheless, falling bunker prices would and the waning effect of bunker adjustment factors would also trim profitability next year.
“The oil price is stable and if that continues, lines are not capable of improving on bunker costs to the same extent as they have been this year,” he said.
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