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Surprising Turnaround: Ship Demand Peaks Despite COVID-19

2020 will be remembered as one of the strangest years for container shipping. Carriers and non-operating owners’ prospects were bleak as most countries went into lockdowns which severely impacted consumption, industrial production and, in a ripple effect, world trade.

The spectre of dwindling container volumes loomed. Carriers issued profit warnings and started to reduce drastically their offer on numerous long-haul routes through services closures, loop mergers and successive blank sailings.

Then the unexpected happened. As the lockdowns were eased in several countries, demand started to rise without rational explanation at first sight. This prompted carriers to resume suspended loops and organize extra loops that progressively mopped up most of the surplus capacity.

The inactive fleet, that includes ships not readily available due to their current situation has fallen to around 430,000 TEU as per today’s count (1.8% of the world fleet), down from a peak at 2.70 MTEU at in late May (11.6% of the fleet).

Peaks in both spot rates and capacity were reached in September. Even the Chinese Golden Week holiday in the first days of October does not seem to have affected demand so far. Extra sailers are still offered, although not at the same pace than in the past month. There remains a dearth of tonnage in the sizes above 5,000 TEU.

The reasons for this sudden resumption in container shipping demand are multiple: a catch-up effect, dislocation of air freight markets benefiting seaborne transport, a hefty rise in demand for hygiene products, and people spending money on consumer goods rather than on travelling.

Governments’ efforts to avoid economic meltdown and a loss of confidence have so far paid off. With the second wave looking inevitable in many countries, uncertainties are growing however. Visibility is low. Liner operators are taking advantage of the moment. Tomorrow is another day.

For the moment, carriers are surfing on a wave. Spot rates are at all-time highs on several key trades. Non-operating owners are profiting from a tonnage scarcity that is lifting charter rates.

In the larger sizes, there is no more spare capacity. All the ships over 5,000 TEU that are employable are employed. Those that remain inactive cannot sail right now as they are locked in scrubber retrofits, or undergoing emergency / unplanned repairs, or extended maintenance schemes. Two ships are also under arrest and one ship is in forced COVID-19 quarantine.

The situation has also become unusually tight for the 3,000 - 5,000teu segment. Only two classic panamax of 4,800 - 5,000 TEU remain free of employment. However, they are in cold lay up and are therefore only available at a few weeks’ notice. The 3,000 - 4,000 teu size is fully employed.

Carriers have so far resisted the urge to increase the speed of their vessels to augment their transportation capacity. Cheap bunker fuels would support such an option. This reluctance to increase speed reflects a change in behaviour as the need to reduce CO2 emissions is making its way.

Source: Alphaliner

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