Majority of container carriers will be in the black in 2017: Drewry

THE London-based shipping research and consulting firm Drewry is forecasting most container carriers will have small profits in 2017, after losing money last year.

It estimated that carriers collectively had an operating loss (earnings before interest and taxes) of US$3.5 billion in 2016, but will have an operating profit ranging between $1.5 billion and $3.3 billion in 2017, depending on how much freight rates improve, American Shipper reported.

Speaking during a webinar, senior manager, container research at Drewry, Simon Heaney, noted how there has been great variation in operating profit margins among carriers in recent years, a trend he expects will continue. “We think that wide spread of margins is going to be a continuing feature of 2017, the only difference is that you will see more winners than losers,” he said. “The relative success of each carrier will depend on their exposure to the least and most profitable trades as well as their operating expenses.”

Mr Heaney said while Drewry was optimistic about 2017, a spike in bunker costs or a rate war in one of the key trades “could condemn many of the lines to another year of loss making.”

Director of container research at Drewry, Neil Dekker, noted that the fourth quarter of 2016 saw an uptick in demand for container transportation, and that for the year as a whole, demand was up 2.2 per cent in 2016.”For 2017, we’re certainly expecting slightly stronger performance on the demand side,” he said. The industry also benefitted from limited growth in supply of 1.7 per cent in 2016. Mr Dekker said that was a lot less than Drewry anticipated, and resulted from record scrapping – about 659,000 TEU of capacity – and delay in ship deliveries. For this year, Drewry’s fleet growth expectations are about 2.2 per cent, he said. Maersk, CMA CGM and Costamare have all delayed delivery of some new ships until 2018.

“The order book’s dead,” he said. “The big question really is when will this be reactivated? Well we certainly don’t think any time soon.” Mr Dekker added there are no big orders and that an order by the Islamic Republic of Iran Shipping Lines for four 14,000 TEU ships late last year has not been confirmed.

Since the beginning of this year, freight rates as recorded by the Drewry East-West Freight Rate Index have fallen about 20 per cent over the first three months.

But Mr Heaney cautioned against reading too much into this, noting this downward trend early in the year was similar to the seasonal pattern seen in 2015 and 2016. When compared on a year-on-year basis, the rates in the first quarter of 2017 were about 40 per cent higher than they were in 2016, and 20 per cent lower than they were in the first quarter of 2015. “On an annual basis, East-West rates are doing just fine,” he said. Last year’s very low freight rates were an exceptional event he said. Drewry expects rates – on both East-West trades and globally – will continue to improve in 2017 and “help carriers remove a lot of the red ink from their income statements.”

Mr Heaney added: “We can say with a high degree of confidence the market has definitely turned and carriers are now once again price givers, not price takers.”

Looking at the long-term trend, since 2013, he said carriers “are fighting against a long-term downturn in rates that previous upturns failed to arrest.” To reverse that trend, he said a long period of above average spot rates will be required, and “that doesn’t happen all too often.”