Global Market Outlook on Ocean Freight industry

Supply–Demand Situation and Outlook

  • The current supply–demand imbalance in the industry need to be considered to manage the capacity deployment
  • The recent alliances and Merger and Acquisition (M&A) activities will enhance liner’s capabilities to manage actual deployed capacity better, leading to freight rate recovery

ocean freight market

Tightening of Space along Major Trade Lanes

  • Tightening of space situation has been witnessed across all three major routes (APAC to North America, APAC to Europe, and APAC to Oceania), leading to higher rates
  • With rates expected to escalate further during the post-peak season, the industry should guard against carriers imposing GRI and PSS

Importance of Free Time in Demurrage and Detention

  • “Free Time” is one of the most important cost components in ocean shipping and ignoring its significance could result in unnecessary detention and demurrage charges
  • The importance of free time is further accentuated by the current state of port congestion and unavailability of chassis during the busy period

Negotiation Opportunities to Reduce Risk

  • Maintaining a well-established set of KPIs, like Actual Time of Departure and Percentage of booking confirmed, based on booking date, will facilitate reduction in risks. It should be seen that 90–95 percent adherence of KPIs should be maintained as a best practice
  • Storage costs is an important cost component (which increase exponentially) and it can be negotiated with a partner at a private inland port for free or reduced storage rates

Supply–Demand Dynamics: Imbalance in the industry

The industry has been witnessing a supply–demand imbalance. The expected global container shipping capacity of 8.4 percent is likely to exceed the demand growth of 3.1 percent in 2017, which was witnessed over the past five years

  • Overcapacity: With regard to new-build capacity, one million TEUs are expected to be delivered, which is above and beyond one million TEUs that are idle
  • Risk of idle ships being reinstated: Around 6.5 percent of the global shipping capacity is idle, as operators have withdrawn services to cut losses and have returned chartered-in vehicles when their lease expires. Operators are expected to reinstate their idle-owned capacity, as freight rates return to more profitable levels

Supply–Demand Imbalance

  • The global container shipping capacity witnessed a net capacity growth of 1.2 percent in 2016. It is expected to grow by 8.4 percent in 2017, followed by 5.9 percent in 2018, 1.2 percent in 2019, and 0.01 percent in 2020 (on a gross basis)
  •  This capacity is higher compared to container shipping demand growth, which was around 3.1 percent per annum over the past five years
  • In the recent years, an uptick has been witnessed in the global trade demand, with global container shipping volume rising to 5.3 percent Y-o-Y in November and December 2016
  • With freight rates increasing, the order book for new containerships is about to resume after being dormant for over 18 months
  • The French carrier, CMA CGM, has confirmed nine 22,000 TEUs and has signed a letter of intent with two Chinese shipyards