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Trade war ‘wild card’ for container shipping in 2019
Source
American Shipper
Post Date
11/30/2018

Projecting the size of the global container fleet will grow 3 percent next year, half the rate of 2018, Peter Sand, the chief shipping analyst for BIMCO, said that “2019 looks like a year in which the fundamental balance can only improve.”

But he cautioned that “the trade war remains the wild card” in the outlook for container shipping.

He said 125.2 million TEUs were shipped in the first nine months of the 2018, an improvement of 4 percent over the first nine months of 2017, but said the growth rate has been slowing for six months.

“Orders have been placed for 1,176,000 TEU of new capacity this year so far, 476,000 TEU of it in September,” most of which reflects Hyundai Merchant Marine’s order for eight 15,300-TEU ships and 12 23,000-TEU ships from South Korean yards, Sand said.

The orders for new ships are split between two extremes, according to BIMCO: 82 percent for ships with a capacity of 11,000 TEUs or more, while 18 percent are for ships carrying 3,100 TEUs or fewer containers.

Most of the new orders are for delivery in 2020, when BIMCO expects more than 1 million TEUs of new capacity to be delivered.

But next year, “if the demolition level reaches higher than 100,000 TEU, fleet growth should stay below 3 percent — half that of this year,” said Sand.
“The trade war is firing on all cylinders now. U.S. importers are said to be paying 50 percent more in tariffs in September compared with the same month last year. Two-thirds of the increase come from containerized goods,” he said.

“In China, where predominantly dry bulk goods are targeted, imports of many commodities have been dramatically reduced. This also goes for the 7.1 million tonnes of imported containerized goods that have been hit by tariffs on Chinese imports.”

Maersk, reporting its third-quarter financial results last week, said global container trade is projected to increase by 3 percent to 4 percent in 2018 and 2 percent to 4 percent in 2019.

"The moderation of container demand growth compared to 2017 mirrors the gradual slowdown in global macroeconomics and global export orders,” said Maersk.
Maersk said the escalation of trade restrictions between the U.S. and China in the third quarter — the U.S. on Sept. 25 imposed 10 percent tariffs on imports from China with a value $200 billion and China retaliated with tariffs on imports from the U.S. with a value of $60 billion — together amount to around 2.6 percent of global value of traded goods.

With those U.S. tariffs slated to increase from 10 percent to 25 percent on Jan. 1, Vincent Clerc, the chief commercial officer of Maersk Line, said, “We expect to see a significant slowdown in demand of imports into the U.S.” as many shippers have accelerated purchase orders to get goods into the U.S. before the higher rate kicks in.

“As we see a stronger demand now, we expect to see a lull as the tariff comes into effect while everybody is trying to figure out how they will structure their supply chain going forward,” Clerc said.

He said Maersk will deal with this expected reduction in demand by taking capacity out in the transpacific market around the Chinese New Year “to make sure that we have right-sized our network for lower demand and can keep ourselves in line with what our customers expect.”

He said other trade routes have yet to be affected by trade tensions.

“The fact that we’re underweight market share-wise in the Pacific is actually something that that comes in quite handy right now,” he added.

Maersk highlighted several other factors other than the cyclical slowing of the global economy that would reduce demand for container transport:
A sharp slowdown in global growth because of tightening U.S. monetary policy.
“Investors taking an increasingly risk-off attitude toward some economies.”
Vulnerability of emerging economies to “fluctuations in the U.S. dollar and to the economic development in the U.S. via their financial leverage.”
The outcome of the Brexit negotiations, which Maersk says poses a risk to United Kingdom container trade. Last week the U.K. Chamber of Shipping welcomed reports that the U.K. government and the European Union have reached agreement on the U.K.’s withdrawal.

Bob Sanguinetti, CEO of the U.K. Chamber of Shipping, said, “From the outset, we have said that maintaining frictionless trade between the U.K. and the European Union is the absolute priority. This withdrawal agreement appears to achieve that, to the benefit of businesses and consumers alike.”

Maersk said the combined effect of all trade restrictions introduced during 2018 could reduce global container trade by 0.5 percent to 2 percent during 2019-20.


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