This commentary appeared in the print edition of the Jan. 6, 2020, Journal of Commerce Annual Review and Outlook.
Just when you thought it was safe to get back on the growth wagon, along came tariffs!
The container market has been so adversely affected by the US–China tariff wars that it is in fact easy to predict 2020 as a year of eventual repair and a slow climb back to normalcy. Until then, however, we will continue to be faced with a reduction in trade and the global impact of oversupply.
Trans-Pacific trade, the bellwether of the container industry, is headed for its first annual decline in ten years. While the first three quarters were relatively robust — with a large amount of front-loading in anticipation of the tariffs — the last quarter has shown a significant decline, with volumes expected to be off around 5 percent for November and December once year-end figures are calculated.
With the IMO 2020 legislation about to take effect, we would expect to see annual fuel bills for the carriers rise significantly, especially for the lines that do not fit scrubbers to their ships. It takes time to install the scrubbers, and while Mediterranean Shipping Co. (250 scrubbers either fitted or on order), Evergreen (150) and Maersk (140) lead the pack, there are many other lines that are well behind the proverbial “eight ball’ in this regard.
The current orderbook for new ships has slowed to around 10 percent of capacity, but this still represents just under 4 percent annual growth at a time when demand is somewhat stagnant and might even be negative for 2019 when all is said and done.
We expect liner profitability in 2020 to be severely challenged at least for the first half of the year.
The sun will come out, but it may not be tomorrow!