Container shipping future looks bright, Hapag-Lloyd CEO says

<<HAMBURG, Germany — Container shipping has a bright future, despite the current rash of gloomy short-term forecasts, according to the CEO of Hapag-Lloyd.

“Don’t get completely carried away by the forecasts” which are like stock markets, reacting instantly to every event, Rolf Habben Jansen told about 200 attendees at the JOC Container Trade Europe Conference in Hamburg today. “What happens in the next two to three months is anyone’s guess,” Habben Jansen said in his keynote address, adding he is cautiously optimistic about the next two to three quarters.

Container shipping “is fundamentally an attractive growth industry” with long-term annual growth of between 3 to 5 percent “a pretty safe bet,” he said. “There are not many other industries that grow faster than GDP.”

Carriers, Habben Jansen said, must take a long-term view rather than look to short-term forecasts because of the high level of investments in new vessels.

The industry was already 20 percent bigger in 2014 than it was in 2008, a year before the 2009 financial crisis led to the deepest recession in decades and a related crash in cargo volumes. “Not many economies are bigger now than in 2008,” he said. “We should not forget this.”

Habben Jansen downplayed the widespread concern over surplus capacity over the past four to five years, arguing that the trend to build ever-larger ships has run its course as their incremental cost benefits over the previous size sector are “not that big.” Capacity, he added, will likely increase “less than or very close to” the growth in demand in the next 18 to 24 months. “The situation won’t get any worse. Slowly but steadily it will get better” in the long term.

The order book, which hit a peak of 55 percent of the global fleet in 2008, has fallen to between 15 and 20 percent today.

Habben Jansen said fears of a surplus also were fueled by the tendency of shipyards and carriers to promote the capacity of new vessels — a ship capable of carrying 20,000 twenty-foot-equivalent container units actually carries 16,000 to 16,500 TEUs when full.

The rush to order ever-larger ships also is slowing because the biggest vessels can’t operate on many trades, including routes to Africa, South America, the Panama Canal and at least for now, the U.S. West Coast.

“We are starting to reach the limits of what makes economic sense,” Habben Jansen said. There is a certain optimum size of vessel and “we believe we are very close to it.”

Next year’s opening of an enlarged Panama Canal also will reduce capacity as a large slice of the Panamax ship fleet — vessels capable of carrying about 5,000 TEUs — will become “rather uneconomical from one day to another.”

A large part of the Panamax fleet, which accounts for 20 percent of global capacity, will disappear in a matter of years, he said.

The CEO of Hapag-Lloyd, the world’s fifth-largest container carrier by fleet capacity and which was involved in the last major industry merger — with Chile’s CSAV — said consolidation will continue “but not at a very fast pace” similar to the rate of the past five to 10 years.

But, he added,  “We should not underestimate the power of carrier alliances, (which) are definitely an alternative to consolidation.” There is room to develop and extend the scope of alliances, possibly by focusing on inland operations and terminals, but carriers must be “careful with regulators,” he said.

A more integrated alliance such as the planned P3 partnership among Maersk LineMediterranean Shipping Co. and CMA CGM — which was aborted after being blocked by Chinese regulators in June 2014 — or a joint venture, are possible.

Habben Jansen’s bullish long-term outlook was countered by a more somber short-term analysis by Philip Damas, director of Drewry Supply Chain Advisors, who said 2015-16 is shaping up as “a massive year of transition and instability.”

The London-based consulting firm expects the industry to grow by just 2 percent in 2015, the lowest increase ever apart from 2009, though it is forecasting a 4 percent rise in demand in 2016.

Overcapacity, Damas said, is increasing and in 2016, “will be as bad as in 2009.”

The market is so challenged that carriers no longer push through general rate increases on the key Asia-North Europe route, which experiences “Groundhog Day on the first of every month” when GRIs collapse, he said, noting that spot rates slumped to an all-time low in July.

Carriers must take radical action beyond voiding sailings to boost freight rates, by removing capacity permanently, Damas argued.>>


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