Container shipping set to pick up steam, but not all routes lead to recovery

IN THE midst of the bad news stories about Covid-19, it is nice to see a good news story. Singapore's next-generation Tuas Port has the International Association of Ports and Harbors' World Ports Sustainability Award for Community Outreach & Port City Dialogue: Port Development and License to Operate.

Now under construction, Tuas Port is expected to be the world's largest container port at one single location, capable of handling up to 65 million twenty-foot equivalent units (TEU) a year when fully completed by the 2040s.

The Maritime and Port Authority of Singapore's chief engineer and senior director (engineering and project management), Tham Wai Wah said: "Tuas Port represents a bold vision for Singapore. As a responsible hub port, this award affirms our commitment to balance environmental protection with port development. It is our ambition for Tuas Port to become a beacon for sustainability, safety and efficiency."

In life nothing is risk free, and certainly not in the box ship business. But building a state-of-the-art terminal in one of the world most strategically located hub ports must be a good bet. Other decision makers in the container shipping industry are in a less enviable position.

According to specialist shipping research company Maritime Strategies International (MSI), container ship markets are exhibiting contradictory signals as the global economy continues its tentative emergence from lockdown.

The first of MSI's new Horizon Monthly reports said that on nearly all trade lanes, the container industry appears to be "past the worst" in terms of demand impact, with "little evidence that liner companies are deviating from a course of swiftly and aggressively removing capacity where this is deemed appropriate".

MSI said such capacity decisions will be challenging as the world emerges from lockdown. It notes that, with a handful of exceptions, freight markets remain healthy while, with no exceptions, time charter earnings are weak.

"We see little reason to expect a notable decrease in freight rates in the near-term; the spike in Transpacific spot rates is likely a temporary phenomenon, but along those lines it seems liner companies are more likely to under- than over-estimate volumes across different trade lanes," said MSI container market analyst Daniel Richards.

"Market share-grabbing strategies by individual lines do remain a source of risk, but the evidence of the crisis so far suggests under-cutting activity is not an attractive strategy for the major liner companies."

That assessment will not go down well with shippers and European Union competition bureaucrats who believe lines should forever engage in cut-throat and ultimately suicidal undercutting.

Keeping down capacity has impacted on the container ship charter market. As MSI puts it "liner company austerity has driven an increase in the number of off-hire, idled vessels (in addition to vessels tied up in repair yards)".

MSI said: "While market levels as of mid-June likely represent a 'trough' for most benchmarks, the road to recovery will be slow over the second half."

Positive signals

Mr Richards said: "In certain and subtle respects, the coming quarters pose greater uncertainty than recent months; compared to the obvious implications of lockdowns the speed at which economies and volumes can recover in the near future is far less clear.

"While there are some positive initial signals from the US in terms of consumer spending (albeit tempered by the growing number of Covid-19 cases), we expect non-main lane importing regions will face ongoing economic pressure and in the near-term, intra-Asia volumes are likely to 'lead' in a wider recovery."

The prediction regarding intra-Asia volumes will be welcome news for Orient Express Lines Singapore, which has just changed its name to Straits Orient Lines Singapore (SOL).

The company says it is "affirming its regional focus within Asia's dynamic and rapidly expanding markets".

The company is part of Transworld Group Singapore. Chairman and CEO Mahesh Sivaswamy, said: "Our strategy has always been to focus on depth instead of breadth, and our new name is symbolic of this enduring principle. We will continue to build on our strong regional position by seeking opportunities to connect the Straits with new markets."

While consolidation of the main East-West trades into a few space sharing alliances has enabled the lines to have some control over capacity, it is difficult to have confidence that this will be enough to limit space available to the extent that liner shipping will bring in the consistently high enough profits to justify the massive investments made in new tonnage.

Concentrating on the intra-Asia and, possibly, North-South routes would seem a better bet.