LONDON : After the intense turbulence of 2016, the container shipping industry is in a rare sweet spot at the moment but the next year could prove challenging.
"Over the last 12 months, almost everything that could have gone right for the sector, has done so," said HSBC Asia-Pacific Head of Transport Research Paresh Jain.
This started with the bankruptcy of Hanjin, which then led on to tightness in supply, and the huge losses that the industry made till that time led to unprecendented scrapping, which then tightened supply even further.
Meanwhile the recovery of demand in 2017 was better than expected. "While there was an expectation that demand outlook for 2017 will be better than 2016, it certainly surpised us on the upside," Jain noted. "So a recovery that started with tightened supply was continued with better than expected demand," he said. This however plants the seed for turbulence ahead. Wth the recovery having started in the second half of 2016, the next 12 months of growth on that relatively higher base will mean that demand will almost certainly slow. "If we see that the last 12 months had a lot of tailwinds, the next 12 months will see similar headwinds," Jain said. Furthermore with the recovery in the current freight rate environment where the lines are back to making money, he noted that the impetus to scrap more vessels will diminish.
"So going into the next 12 months, what you will see is less slippages, less scrapping, which will mean higher than expected supply growth will coincide with lower than expected demand when we compare it with the previous 12 months," Jain concluded.