Can all this optimism be justified?

Ports are under increasing pressure as more 10,000-plus teu ships enter the market. Credit - Coast Guard News, Flickr, CC BY-NC-ND 2.0 Ports are under increasing pressure as more 10,000-plus teu ships enter the market. Credit - Coast Guard News, Flickr, CC BY-NC-ND 2.0

COMMENT: Demand growth in volume terms remains buoyant at 5.2% in 2017 but does anyone remember the 15%-25% growth rates before the Great Recession, asks Ben Hackett.

Those days are gone but companies looking for good news take lower growth rates with a pinch of optimism about the future.

The risk around global trade is to a large extent ignored even though trade wars, real wars and excess capacity in shipping and ports are serious threats to economic growth. The likes of the International Monetary Fund are beginning to be hesitant about the longevity of the current trade growth spurt, warning of potential weakness by 2019.

The OECD has the same message: it is projecting global trade to increase by 3.9% this year compared with 3.7% last year but it points out several financial sector risks and vulnerabilities, as well as those posed by a rise in protectionism.

There is excess capacity in the bulk and container shipping sectors and there are more than enough port facilities around in Asia, Europe and North America. This excess capacity drives down the ability to raise prices – does the industry continue to forget the lessons of supply and demand balances on pricing?

The tanker sector has too much capacity and is scrapping. But owner optimism may be misplaced as many of the vessels sent for scrapping have been involved in floating storage, while others have shown little sign of recent trading. The use of tankers for storage is a short-term panacea.

The bulk sector suffers from Chinese import restrictions on commodities such as coal. In the container sector, new ultra large ships are on order for delivery through 2021. The low layup and scrapping figures hide the fact that ships are being put into new services where they add to existing over-capacity and are far too large for the volume of trade.

Meanwhile the container port sector struggles with the ever-increasing vessel call turnover and the demand for lower prices. As more ships over 20,000 teu enter the Asia-Europe trades this situation will not change. Perhaps a bit more realism and a little less optimism is required.


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