Maritime Shipping Forecasts Remain Positive Despite Slowing Growth

Stephen DeAngelis

November 12, 2010

In a couple of posts published earlier this year (Stormy Seas Seem to Be Calming for Shipping Lines and Shipping News Keeps Getting Better), I reported that headlines concerning maritime shipping have been increasingly positive. The news has been especially bright for lines specializing in container shipping. Back in April, Evergreen, Asia’s second largest container shipping line, was confident enough in the future that it indicated it might order a hundred new ships [“Evergreen to order 100 new container ships,” by Robert Wright and Robin Kwong, Financial Times, 14 April 2010]. Wright and Kwong reported that this was the line’s “first significant container ship orders since the sector’s crisis wrecked most lines’ finances.” They continue:

“Chang Yung-Fa, [Evergreen Marine] chairman, said he planned to buy up to 100 vessels, costing more than $5bn in total. The orders would include 32 ships of 8,000 twenty-foot equivalent units, likely to be one of the largest ship orders ever placed. Orders on the envisaged scale would allow Evergreen, which had the world’s second-largest container ship fleet as recently as 2002, to claw back the market share lost because of Mr Chang’s reluctance to order new ships during the sector’s 2002-08 boom. … Some analysts have long believed that Evergreen could emerge stronger from the industry crisis than some of its rivals because it entered the industry’s downturn – which saw world container volumes fall about 10 per cent last year – with no ships on order. … Because of its lack of orders in recent years, Evergreen has one of the oldest fleets of any large container line worldwide and needs to replace many of its ships.”

In September, Wright reported, “The world’s largest container shipping line is serving more parts of Africa and Latin America with ships sailing directly from Asia, as accelerating growth in emerging economies redraws the traditional world shipping map.” [“Maersk charts new path to growth,” Financial Times, 26 September 2010]. Wright continues:

“Eivind Kolding, chief executive of Denmark’s Maersk Line, said many of the ships it had on order over the next two years were designed to meet growing African and Latin American demand for the manufactured and other goods it carried. Like most container lines, Maersk previously focused predominantly on moving goods from Asia to Europe and North America, serving Africa and Latin America mainly by ‘feeder’ ships shuttling to and from major ports on the main routes.”

Wright notes that “the container shipping sector had its worst-ever year in 2009.” He also reports that, even though “there was a significant recovery in the first half of this year,” indications now show “that the pace of recovery is … slowing.” One cannot generalize, however, about global shipping trends because some regions are growing while others are slowing and some shipping sectors haven’t enjoyed the same rebound experienced by container shipping. Wright explains:

“‘It’s really the west and the old economies that have a growth issue,’ Mr Kolding told the Financial Times. ‘It’s not the rest of the world.’ Mr Kolding said that the growth disparity was leading the shipping line to ‘adjust’ its network. It would introduce more ships suitable for the smaller harbours and lower cargo volumes of the Latin American and African trades. Many of these ships would sail direct from Asia to the new markets.”

According to Wright, Maersk “routes serving Africa saw volumes rise 12 per cent in January to June this year compared with last, while Latin America routes grew 18 per cent. Asia to Europe volumes rose only 5 per cent.” The United States is one of the industrialized nations where containerized shipping growth is slowing [“Retailers See Better Holiday Season Despite Slowing Imports,” by Peter T. Leach, The Journal of Commerce Sailings, 8 November 2010]. Leach reports:

“Containerized imports are slowing at the 10 major U.S. retail ports following their peak in August but are expected to be up 9 percent in November over the still-recession-bound month of November 2009, according to the monthly Global Port Tracker report released … by the National Retail Federation and Hackett Associates. ‘The cargo numbers show that retailers are expecting a much better holiday season than they have seen over the past two years, but the industry is still being cautious,’ said Jonathan Gold, the NRF’s vice president for supply chain and customs policy. ‘Retailers know shoppers still have the economy in mind, so they are being very mindful with inventory levels this year.'”

Leach reports that “U.S. ports handled 1.34 million 20-foot equivalent units in September, the latest month for which actual numbers are available. That was down 6 percent from the August peak but up 17 percent from September 2009.” Although import growth is slowing, Leach reports that September “was the 10th month in a row to show a year-over-year improvement after December 2009 broke a 28-month streak of year-over-year declines.” Overall that means the news remains positive for container shippers. Leach indicates that experts continue to forecast moderate growth in shipping through the end of the year. The forecast is no so bright, however, beginning early next year. Leach continues:

“February, traditionally the slowest month of the year, [and the Port Tracker estimate] is forecast at 1.06 million TEUs, down 5 percent from last year, and March is forecast at 1.04 million TEUs, down 10 percent. Port Tracker has not yet calculated forecasts beyond March, but anticipates a solid recovery in the second and third quarters of 2011 after the usual slack winter season. ‘Despite the economic uncertainty and the underlying weakness of the economy, we continue not to project a double-dip recession,’ said Ben Hackett, founder of Hackett Associates. ‘Underlying fundamentals remain healthy. Inventory-to-sale ratios, while going up marginally, are still at a 10-year low, suggesting extremely tight supply chain management. Consumer confidence has not changed much over the last four months, but consumer expenditures have picked up. The fear of unemployment and financial exposure may be waning.'”

Despite the forecast dip in U.S. imports, shipping lines are feeling much more confident about the future. This year proved to be a boon for container shippers. In fact for some lines, 2010 will prove to be their most profitable year ever [“Maersk predicts record year as volumes recover,” by Robert Wright, Financial Times, 10 November 2010]. Wright reports:

“AP Møller-Maersk forecast that 2010 would be the shipping and oil conglomerate’s most profitable year ever, a remarkable turnround following the Danish group’s 2009’s unprecedented full-year loss in 2009. … The owner of the world’s largest container shipping line had already exceeded its previous $4bn forecast for annual net profit. It now expects a profit for the year of $5bn – ahead of the $4.69bn for 2004, its previous record – after a $1.67bn net profit on $14bn turnover for the June to September period alone. The figures took profits for the year so far to $4.19bn on $41.4bn sales.”

As I noted above, container shipping has been the real bright spot for the industry. Bulk carriers, especially those shipping oil, have not enjoyed the same recovery. As Wright reports, “The main weak spot remained Maersk Tankers, the world’s largest owner of tankers in the depressed market for moving oil products. The division made a net loss for the nine months of $22m, from $8m last year.” Because 2009 was such a bust for shipping lines, their investment decisions, even though they express confidence in the future, are much more cautious than they were prior to the recession. Wright explains:

“Despite the generally positive outlook, Maersk joined other container shipping companies in warning that the last three months of the year would see declines in both volumes and earnings per container shipped. A number of lines have started laying ships up out of use, although the numbers being stored remain well below those at the depth of the industry’s slump earlier this year.”

Despite the fact that some lines are laying off ships, “Maersk Chief Executive Nils S. Andersen said he expects global container market volumes to rise 6% in 2011” [“Maersk Sees Trade Rebound Continuing,” by Jens Hansegard, Wall Street Journal, 10 November 2010] and Evergreen continues its plan to buy new ships [“Evergreen Marine In Talks To Buy 10-12 Container Ships,” by Joanne Chiu, Wall Street Journal, 8 November 2010]. As noted above, most of this optimism and growth is being fuelled by economic activity in emerging market countries. Pundits who believed that the 2009 recession marked the death of globalization must surely be reconsidering their positions. Not only has globalization proven resilient so have emerging market countries that rely on globalization’s benefits to help foster a growing global middle class. That’s a good thing for the global economy since emerging market countries are being touted as places where most future economic growth is going to take place.