Global container trade is expected to grow by up to 3.8% annually by 2020 in a bullish scenario and 2.2% in a bearish scenario, although the industry would need to behave in a "reasonable" manner, according to The Boston Consultancy Group (BCG).
Among the major factors considered in the bullish scenario forecast in Asia-Europe and intra-Europe trade, European Union cohesion policies are expected to boost consumer confidence while an easing of sanctions against Russia strengthens the rouble, said BCG partner and managing director Camille Egloff at the Global Liner Shipping Conference in Singapore.
A bearish scenario would entail a slow or lack of structural reform in the EU, weakening consumer sentiment.
For the transpacific trade, an improving US employment situation and pressure to keep interest rates low raises imports, while continued Chinese capital spending drives backhaul. Conversely, a widening US income gap and interest rate increase hits imports, while a slowing Chinese economy weighs on industrial exports from North America.
In intra-Asia trade, a rise in Chinese offshoring production to Southeast Asia and strengthening private consumption in China could increase trade in the region. In the worse case scenario, the slowing Chinese economy and rising corporate debt drags on imports.
Trade for the Indian Subcontinent and Middle East is projected to pick up as nations in the Gulf region stay resilient against low crude oil prices, while India continues with initiatives to enhance its logistics infrastructure. On the flip side, a protracted low oil price environment drags on Middle Eastern economies, while India's ambitious port and hinterland infrastructure development could be obstructed by bureaucracy, as well as other things.
Necessary objectives for the industry to effect a recovery include shipping lines speeding up the scrapping of vessels, resisting the lure of cheap financing, and capping vessel orders to narrow the supply and demand gap, said Egloff.
In order for the market to reach a supply and demand equilibrium, the consultancy estimates 2m teu-3.3m teu of excess capacity would have to be removed from the market.
"Based on current fleet projections, around 24m teu [of vessels] will be in service by 2020," said Egloff, compared with an estimated 20.5m teu for 2016 as a whole.
She added that shipping lines would have to make do with lower utilisation rates of around 85% on average, instead of taking containers at below break-even costs.
The industry should also stay away from engaging in cut-throat price competition which have increasingly eaten into general rate increases over the past 15 years.
"Now with the EU ending GRIs, the risk for price wars is higher," Egloff said.
She also advised companies, in an industry notoriously slow in adapting to change, to embrace the digitisation of business operations, which could improve cost controls via voyage-monitoring applications and optimise networks. This digitisation of business can be applied to commercial aspects such as electronic platforms and transferable bills of lading.
Egloff singled out two groups most likely to survive and thrive in the difficult operating environment, namely the scale leaders such as CMA CGM and Maersk Line, as well as container shipping lines with a niche focus, such as Wan Hai and SITC.
This is an edited extract from a longer analysis article published in Lloyd’s List. You can read the full original article via this link: Global container trade could grow by up to 3.8% by 2020.
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