A summer surge on the transpacific was a welcome boost to freight and charter earnings but it is too early to conclude the worst is over, says shipping analyst
Container ship markets have upended expectations since the pandemic began and recent months have brought about some of the most surprising developments yet. The question is whether a clear and above-expectation, post-lockdown boost to volumes can prove enduring to liner networks and to markets.
In its Q3 Containerships Report, UK-based shipping research firm and consultancy Maritime Strategies International (MSI) noted that over the course of Q3 2020 spot freight markets on most trades went from strength to strength, most spectacularly so on the transpacific trade, where rates have reached over US$3,800 per 40-ft equivalent unit (FEU) on west coast routes and over US$4,500/FEU on east coast routes. Moving goods from China to the US west coast hubs on a spot basis is now by some distance the most expensive it has been over the past decade.
And after a sharp and fast slump, most Panamaxes have breached the $US15,000/day level, having troughed at closer to US$7,000/day in June 2020. The recovery over August and the start of September in particular has happened at breakneck speed.
“On the freight rate side, the apparent disconnect between market performance and aggregated fundamentals reflects the fact that the most relevant supply and demand balances (or imbalances) are at the level of individual trade lanes, where liner companies have grown in their ability to adjust supply,” said MSI container shipping analyst Daniel Richards. “For the timecharter market, the size and structure of liner company networks were cut down in size earlier in the year and T/C rates fell sharply in response. Since then, lines have restored their networks at high speed while demand-side impact of Covid-19 has been less severe across different trades,” noted Mr Richards.
Turning to demand-side developments, mainlane demand trends broadly outperformed expectations in H1 2020 against the backdrop of the initial closure of China’s factories and then extensive lockdowns across importing regions. While headhaul import volumes certainly fell – and sharply so – in the worst-affected months, the scale of the decreases was smaller than seemed likely when the lockdowns were first announced.
“While it is too early to draw definitive conclusions,” said Mr Richards, “the picture that is emerging is one of a compressed peak season, where earlier inventory draw-downs, robust consumer demand, import-inducing lifestyle changes and importers uncertain about the remainder of year have combined to produce an unexpected boom in US import volumes in particular,” added Mr Richards.
This raises important questions regarding the remainder of 2020, in particular whether the current strength in volumes is effectively ‘borrowing’ from the future. This remains highly uncertain, but overall MSI expects the most recent volume strength will not be maintained over the remainder of 2020, and Q4 2020 in particular could prove challenging. Renewed capacity withdrawals will likely follow if freight rate strength is to be maintained.
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