The shipping industry can expect an uncertain and lower level profit as the support from China, one of the most important drivers of shipping demand growth in recent times, is re-evaluating its future growth direction.
On the other hand, Europe and Japan, in particular, look like they might provide positive surprises in 2016. The European Central Bank and Bank of Japan are continuously seeking to boost their economies to bring on the sustainable recovery that everyone needs.
For the dry bulk sector in 2016, the supply-side growth is expected to come down from (2.6% in 2015 according to BIMCO) in view of a new record level of scrapping. On the demand side, growth is forecast to remain level. Challenging market conditions in China will be likely to affect the level of risk. What we have in today’s BDI index is the lowest from 1985 at 290 points and if compared when we had a boom in May 2008 it was as high as 11793 points. It’s a vertical nose dive and with the Chinese economy in a slump, Chinese imports have died down. Surplus tonnage still exists due to lack of cargo movement between trading countries.
With respect to the tanker market, after the perfect storm a steadier year awaits both the crude oil tanker and oil product tanker markets.
The two sectors enjoyed an extraordinarily strong freight market throughout 2015, ignited by the drop in oil prices that began in mid-2014 and supported by a relatively low supply-side growth in 2015. It was the best year for all oil tankers since the market crashed in late 2008.
However, going forward, the significant building of oil stocks in 2015 may slow down tanker demand growth somewhat in 2016.
BIMCO expects Iran’s return to the crude oil export market in 2016 to disrupt current trade patterns.
The multi-year slide in the crude oil tanker fleet growth was reversed in 2015. The crude oil segment is expected to see a fleet growth of around 4.5% in 2016 (2.3% in 2015). As the demand-side growth is unlikely to reach the same high level, downward pressure on freight rates will follow.
With respect to container shipping, there is a need for growth on key trade lanes to restore market dynamics.
Disappointing European demand for containerized goods versus the strong growth of imports into the US slowed the demand for container ships significantly. At the same time, 900,000 TEU worth of ultra large container ship capacity was delivered. Overall, the market imbalance worsened as the supply-side rose to a four-year high (8.0% in 2015) while the demand-side growth rate hit a three-year low. The lack of head haul volume growth on the Asia to Europe trading lane was particularly worrisome as it accelerated the heavy cascade of ships clogging up other parts of the network.
Going forward, what is needed to revive European imports of containerized goods is for the Euro to strengthen against the Rimini and for retailers to begin restocking again.
BIMCO believes that the crucial thing for the industry is to improve the fundamental market balance in 2016.
As the lower “new normal” GDP-to-trade multiplier limits the potential upside of the demand side, careful management of deployed capacity by the individual operators is still of utmost importance. Last year did not ease the imbalance as more than 1.6m TEU was delivered in 2015.
After a record for new capacity entering the market in last year, 2016 is set for a much lower influx at around 3.5%. This is not sufficient and means the challenging market conditions for container shipping will extend for another year.
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