 Economic growth projections signal coming container shipping upturn |
Source |
American Shipper |
Post Date |
05/17/2021 |
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When you are driving a rally car at a race event you have a driver and a co-driver in the car. The driver is clearly focused on the immediate challenges right in front of the car. If he fails at his job the car will go off the road and the race will be over, but if he does his job well, he will propel the car around the next challenging curve whereupon a new challenge will immediately be in front of him.
The job of the co-driver is to know what is behind the curve and prepare the driver for the next challenge. Both the short and long-term views are important.
The immediate problems in container shipping include bottlenecks in terminals, a shortage of vessels and equipment, sky-rocketing freight rates, and a multitude of similar issues, all of which are very well known to all ¡°drivers¡± in the industry right now.
But what lies behind the curve?
The past few months have seen an influx of new vessel orders from some of the major carriers, prompting the obvious question of whether this is a sign that history is about to repeat itself with a new bout of overcapacity and plummeting freight rates.
And, learning from history, shipping is a cyclical industry and has been so literally for centuries. It is therefore only natural to start contemplating whether we are about to see this kind of over-ordering unfold.
Deping on the source of information, the current container vessel order book for delivery between 2021 and 2024 stands at some 14 to 15 percent of current global fleet capacity. This is of course quite an increase from just a few months ago, when the order book as a percentage of total capacity had fallen below 10 percent. This could technically be called a 40 to 50 percent increase in the order book over just a few months. Looking at the numbers this way would serve to bolster the idea that we are about to see overcapacity again.
But what about demand? Looking at the past decade after the financial crisis, global container demand has grown basically in line with global economic growth as measured by GDP. Looking at any individual year, such a link is not always very accurate ¡ª and ts to fluctuate quite a bit ¡ª but seen over a longer time span, the growth trs match relatively well. In the ¡°old days,¡± there was a multiplier effect driven by the waves of outsourcing and the containerization process itself, but that effect basically came to a natural conclusion more than a decade ago.
Given this link between the global economy and the container trade and the latest GDP data from the International Monetary Fund in their April 2021 World Economic Outlook, we can project global container volumes to grow roughly 18 percent from 2021 to 2024.
In other words, demand will still grow faster (18 percent) than capacity (14 to 15 percent) over the next several years.
And let us not forget that in this period we will also see vessels scrapped to make way for newer, larger, more efficient ships. A container vessel typically has a lifespan of 25 years. Simplistically, this should imply a 4 percent demolition rate per year, but that would be misleading, as old vessels are also relatively small. It is therefore more reasonable to expect a 1 to 2 percent scrapping rate in terms of actual capacity. But even using the lower value of only 1 percent scrapping would lead to a net fleet growth of just 10 percent in the near term against demand growth of 18 percent.
Hence, what the numbers are telling us ¡°co-drivers¡± is that around the curve we are looking into a market in which demand is growing faster than capacity, indicating a cyclical upturn. The carriers could, of course, start to order even more vessels, but anything ordered now won¡¯t be delivered in late 2023 at the earliest. That signals a strong market in favor of the carriers for at least the next couple of years, unless demand growth fs significantly, which is unlikely given expected global economic growth.
Quarantine in Shanghai exted to 21 days with a 7-Day Homestay
The office of the Shanghai Municipal Bureau for Epidemic Prevention and Control released new information for people entering China. Via their WeChat account, the current 2 week quarantine policy for anyone entering China is being exted by an additional 1 week homestay for "community health monitoring", starting from May 16th.
While the announcement leaves a few questions, it appears that the neighborhood commitee will visit twice a day to check your temperature.
Its unclear if its possible to leave the apartment, as the announcement mentions "dont go out", but then says "especially avoid going to the gathering places".
Theres no mention of any exceptions for those being vaccinated.
The announcement does not mention why measurements have been increased at this time, but the big 100th anniversary of the Communist Party coming up in June this year, and Chinas winter olympic games being getting closer may be reasons for the increased precautions.
Wondering what quarantine is like when arriving in China? We wrote about it in this viral article.
Note, this does not apply to those currently in quarantine (phew!). Only those arriving after May 16th will be af
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