Global container shipping companies’ performance will be strong in 2021 after a profitable 2020, according to Fitch Ratings.
Spot freight rates will remain high in the short term which will flow through to contracted rates for 2021. However, Fitch said the current rates are unsustainable in the medium term as the sector is susceptible to rate volatility and risks of weak economic recovery and trade protectionism, requiring constant prudent capacity management.
A combination of rebounding demand for goods in 2H 2020, supply chain disruptions — like container box shortages and port congestion — and more strategic capacity management drove container freight rates up, especially on the routes from China to Europe and the United States.
Shipping one 40-foot container from China to Europe or the US West Coast now costs over 8,000 dollars and 4,000 dollars respectively from well below 2,000 dollars a year ago.
Trade volume recovery was fuelled by a change in consumer spending habits during the pandemic — ordering more manufactured goods while saving by spending less on services like leisure and restaurants. It was further supported by inventory re-stocking by businesses that faced acute supply chain disruptions and increased demand for personal protective equipment.
Total volumes shipped from Asia to North America exceeded 2019 levels by over 7 per cent in 2020. A decline in volumes on the Asia Europe route by about 5 per cent in 2020 indicates a growth potential in 2021 as demand recovers.
Container box shortages and port congestions due to pandemic-related operational disruptions have extended container ships’ turnaround times, further increasing freight rates. A usually quiet period during the Chinese New Year could have eased some congestion but demand remained strong as China maintained its production levels.
Fitch said the ongoing virus outbreaks in many regions and mobility restrictions are likely to keep freight rates abnormally high in the short term. These higher-than-usual spot rates will translate into higher contract freight rates in the ongoing spring contracting season.
“However, we view rate volatility as an inherent sector risk and we expect rates to reduce once supply disruptions related to the pandemic are addressed.”
Although container shipping companies performed strongly during the pandemic, Fitch said the current shipping rates are unsustainable and expect them to moderate in the medium term once supply chain disruptions ease as the industry is highly competitive.
The sector remains subject to risks of geopolitical tensions and trade protectionism, uncertainty about economic recovery paths in different regions, as well as ESG-driven initiatives like IMO 2020 and other emission regulations.
Source : Economic Times
