Lines Accelerate Ship Orders As Rates Rocket

7 May 2021 – Never has the container shipping market been as hot as it is now. This is according to the latest market insight from Drewry Maritime Research where the outlook for ocean carriers looks set for a prolonged and unprecedented upcycle.

This will undoubtedly improve the financial health of shipping lines which have been under pressure for the better part of a decade. According to Drewry, not only will this upcycle allow the lines to reward investors, it will also see them spending more.

“If accelerated ship orders continue, however, there is a risk of a return to overcapacity that will shorten the cycle,” reads the latest market insight report. It is a view shared by marine consultancy Sea-Intelligence which has warned against increasing f leets and upgrading equipment too quickly. In a recent webinar, Jochen Gutschmidt, the company’s vice president of advisory services: global supply chain, said the ongoing demand for goods continued to spike volumes while rates were at a premium, leaving shipping lines with spare cash. “Carriers have always found money to build new ships. In a nutshell, what happened in the past was that vessels were added no matter the market volumes and it created overcapacity.”

He said there was a risk that this could happen again as the expansion of f leets was being seen across the board. “Once the strong demand in goods goes down, trade normalises, and rates drop to a sustainable level, we could very well have the overcapacity in the market that we saw pre-Covid.” But, said Gutschmidt, what also needed to be considered was that carriers had learnt some big lessons in dealing with capacity. Indications were also that rates, while at record highs, had reached a plateau which would also be a sign for carriers not to invest too much in new container vessels. Drewry analysts agree, saying history can be the only guide and the smart bet would be to think that the market will cool down fairly quickly.

The times, however, are anything but normal and it is estimated that carriers are set up for at least another two years of very good profitability. Drewry’s position is that port congestion and container equipment shortages will remain throughout most of 2021, albeit lessening in degree as the months pass. This will further restrict the availability of capacity and lead to substantially higher average spot and contract freight rates. Lines returning to a deep loss-making situation, even in a down cycle, looks highly unlikely. Source (freightNews)