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Container terminal utilization levels set to rise, trade wars permitting

Expansion will allow ports to handle more shipments of export cargo and import cargo in international trade.

Container terminal utilization levels set to rise, trade wars permitting

The medium term outlook for global container port demand growth is positive thanks to strong underlying economic momentum across the world’s major economies. While there may be clouds on the horizon in the form of tariff and trade war fears, economic fundamentals are likely to win-out in the long run, according to the Global Container Terminal Operators Annual Review and Forecast 2018 by global shipping consultancy Drewry.

Against this positive picture near term container port capacity expansion will remain relatively subdued following several years of under investment, particularly in greenfield projects. As a result, average utilization levels are expected to rise markedly across almost all regions of the world by 2022.

Drewry’s latest five year container port demand forecast is based on average global growth of just under six percent per annum, lifting world container port throughput in this period by almost 240 million teu. The global container port industry is now of such a scale that six-percent annual growth equates to around 45 million additional teu each year, broadly equivalent to the size of the world’s largest container port, Shanghai.

Bottom-up capacity projections on a terminal-by-terminal basis present a more conservative picture, with global container port capacity projected to increase by around 125 million teu by 2022, a growth rate of just over two percent per annum. This is clearly well below projected demand and reflects the cautious investor sentiment towards greenfield projects over the last few years. As a consequence, average utilization at the global level is forecast to increase significantly from 68 percent in 2017 to around 80 percent by 2022. Average regional utilization levels are projected to increase most sharply in Greater China, North Asia, Southeast Asia and West Coast South America.

“Assuming our demand projections are well founded, and the threat of trade wars dissipates, we expect many terminal operators and investors to review and potentially increase their activity levels in terms of new capacity additions,” said Neil Davidson, Drewry’s senior analyst for ports and terminals.

“Crucially however, all capacity is not the same,” added Davidson. “Indeed for certain port markets, individual ports and specific terminals, the need for additional capacity may be even greater. Rapid growth in ship sizes has increased the segmentation of terminal capacity, such that today, all ‘deep-sea’ capacity simply cannot handle all ‘deep-sea’ vessels. It is often the case that berths with the infrastructure to handle the largest ships are the most highly utilized and in short supply, while older deep-water berths are under-utilized.”

Eco-ships cost more to deliver shipments of export cargo and import cargo in international trade.

A divided market

Back in the days when the crude price was $100 per barrel and the MGO price close to $950 per ton, eco-ships were able to fetch a $2,500-per day premium over older vessels.

Engine efficiency plays a critical role in voyage expenditure, and its importance increases when bunker prices are high. The recent surge in bunker prices has already seen new MR tonnage able to bargain as high as $15,000 per day whereas older vessels are being fixed at $13,000 per day and less. For example, in May, the six-year-old, 50,000 dead-weight ton (dwt) tanker STI Amber was chartered by Reliance at $15,000 per day, while in the same month two 13-year old 47,000 dwt tankers were chartered by Shell at $12,750 per day each for one year.

High period rates are justified by the savings that eco-ships make on fuel. At current Rotterdam MGO and HFO prices the bunker cost for a non-eco MR tanker completing a transatlantic round voyage could be as much as $0.50 million. Conversely, for an eco-tanker of the same size, the total bunker expense would be about $0.44million and depending upon the speed the savings could be even more prominent.

We believe that Brent front-month futures will average at $76 per barrel in the third and fourth quarters this year. In the past, when Brent averaged $79 per barrel in November 2014, the TC rate difference between a five-year and 15-year MR product tanker period rates was about $1,900 per day. As per our representative TC rates for May, the premium has now reached about $2,000 per day.

With an increase in crude prices and subsequently bunker prices, the period rate differential between modern and old tonnage will only strengthen. Furthermore, with the upcoming IMO regulations on the global sulphur cap for marine fuels, all vessels that are not fitted with scrubbers will be required to burn expensive MGO or LSFO fuel, and hence, the fuel savings on eco-ships will be enhanced even more.. In turn, savings will be reflected in high period rates, and we expect the period rate margin between eco and non-eco tankers to widen. In addition, scrubber-fitted tankers, which will be able to burn cheap HFO, will be able to bargain a premium over eco-ships. In our view this will result in a three-tier market post-2020.

Shippers rate ocean carriers on deliveries of shipments of export cargo and import cargo in international trade.

Survey: European Shippers Less Satisfied With Ocean Carrier Service Quality

The service provided by container shipping lines has deteriorated since 2016 and is now seen by exporters, importers, and freight forwarders as more problematic, according to the second annual shipper satisfaction survey of Drewry and the European Shippers’ Council (ESC).

The joint ESC and Drewry survey reveals that the 400 shippers and forwarders who took part rated the service of container shipping lines with a score of 3.2 on average on a scale of 1 (very dissatisfied) to 5 (very satisfied).

There were different levels of satisfaction for 16 different carrier activities reviewed in the survey. Satisfaction with documentation accuracy scored 3.4, but quality of customer service received only 2.9 and transit times and reliability of booking/cargo shipped as booked attracted scores of between 2.9 and 3 (see chart).

All the service features, in effect, received a poor or medium level of satisfaction score from customers.

Shippers and forwarders also said that carrier performance has deteriorated between 2016 and 2017 in four areas: the range of different available carriers, the range of different available services, the price of service and the overall carrier service quality. But carrier performance related to sustainability/green and carrier financial stability has improved since 2016, according to customers.

“It is disappointing that, even after the big re-organization of container services following the start of new alliances, carriers still do not meet the expectations of their customers—on the contrary,” said Nik Delmeire, Secretary General of the European Shippers’ Council.

“At the time of the survey, the carriers’ Emergency Bunker Surcharge, which we regard as customer unfriendly, was not yet in place, and it is reasonable to think that the results of the survey would be worse if it was done now,” he added.

The ESC invites carriers to meet their customers to discuss real operational issues, as already happens successfully in the European rail freight sector, instead of resorting to new cost surcharges.

“Shippers and forwarders want a balance between service quality and price, but the survey shows that carriers are cutting back on service and offering less choice to shippers,” said Philip Damas, head of the logistics practice at Drewry.

To receive a higher level of customer service, some Drewry customers actively avoid direct contracts with ocean carriers and instead deal with forwarders and intermediaries. “These issues make Drewry focus more on the transit times and service levels of providers when we provide benchmarking analytics to beneficial cargo owners,” Damas commented.

The ESC and Drewry gathered satisfaction scores for individual ocean carriers, but they considered that the number of responses was not high enough to justify publicizing individual results. The two organizations are calling on industry associations or partners to help scale this initiative to become a large, independent monitoring exercise of service quality by carrier.

Coal shipments of export cargo and import cargo in international trade will grow in some markets.

Emerging Markets to Support Coal Trade

A wave of reducing carbon footprints is flowing across the globe. Major coal-consuming countries are looking to reduce coal consumption.

Many EU countries are now part of the Power Past Alliance, with aim of accelerating the transition away from coal. For example, the Netherlands is planning to phase out coal by 2030 and the UK and Italy intend to do the same by 2025. In India, the government plans to reduce the share of coal in electricity consumption by 10 percent in the next five years. On similar lines, China aims to reduce the share of coal in the energy mix by five percent to six percent over a similar period.

The emphasis on curbing coal consumption is now visible, as growth of coal imports has slowed in the last five years, with coal trade growing by a compounded annual growth rate (CAGR) of just 1.1 percent in 2012 to 2017. Imports by major Asian importers (Taiwan, China, S Korea, India and Japan), which account for more than 60 percent of global imports, rose by 0.3 percent during 2012-17, while during 2007 to 2012 these increased at a CAGR of 12 percent. Elsewhere EU’s imports declined steeply during 2012 to 2017, dampening the growth of global trade. While the EU is determined to phase out coal, the declining cost of renewables is making green technology a viable option for developing countries of Asia.

Nevertheless, there exists a group of Asian countries—Malaysia, Philippines, Thailand, Vietnam and Pakistan—where coal consumption is rising steeply. Increasing imports by these emerging consumers is providing support to coal trade. The combined coal imports of these countries increased at a CAGR of 9.9 percent between 2012 and 17. In 2017, their total imports reached 91 million tons, equivalent to 11 percent of global trade and only 5 percent lower than EU imports. Taking into account planned power projects, coal will dominate the energy mix in next five to ten years in most of these countries. For instance, in Philippines, six GW of additional coal-fired power capacity is set to come online by 2022. Additionally, eight GW capacity is waiting for approval. In Malaysia 2 GW of coal-fired capacity is slated to come online by 2020.

Both Malaysia and Thailand depend almost entirely on imports for coal consumption. Therefore, there will be an approximately a one-to-one increase in coal consumption and imports. In Philippines and Vietnam too, domestic coal production will increase at a slow pace, leaving more room for imported coal to meet the energy requirement. Pakistan holds high untapped potential of coal production. However, improving coal production capacity will take time, and over the coming years, imports are likely to increase with rising power consumption.

In short, rising coal consumption in all five Asian countries will lift coal imports and overall we expect coal imports in this group to increase by 40 million tons between 2017 and 2022.

However, imports trade in these countries is highly regionalized, with almost all imports sourced from nearby exporters – Indonesia and Australia. For all the countries, except Pakistan, Indonesia is the top exporter, whereas Pakistan sources its coal mainly from South Africa. In wake of higher charter rates, these countries will continue to prefer sourcing from close suppliers. Thus, the imports to these countries will provide support to short-haul trade.

Drewry sees growth in shipments of export cargo and import cargo in international trade between North America and the East Coast of South America.

Evidence of Demand Recovery in South America Container Trade

There is evidence of a demand recovery in the North America-East Coast South America container trade, but slow economic reform and political uncertainty will make it a tough grind.

From this edition Drewry has switched sources for demand data in this trade so that the geography aligns with our supply data, enabling us to provide information on ship utilization. According to new statistics supplied by Datamar container traffic in the headhaul East Coast South America to North America trade fell by one percent in the first quarter 2018 to 137,000 teu.

Brazil dominates the northbound leg with an approximate 85 percent share, leaving the remainder to the Plate economies of Argentina, Uruguay and Paraguay. The slowdown in traffic from Brazil in Q1 was the result of significant waning in US demand for major commodities such as stone materials (down by 13 percent year-on-year in tonnage), iron and steel (-38 percent) and plastics (-32 percent). However, wood shipments, Brazil’s biggest commodity in tons to America, improved by nearly 15 percent to mitigate lower volumes for other goods. Coffee, the largest export in value, decreased by 15 percent in US dollar terms and by five percent in tons.

Trade was more buoyant in the opposite direction as southbound container volumes rose by 2 percent year-on-year in 1Q18. Much of the impetus occurred in January when annual growth touched 20 percent, before softening in February and declining in March.

Once again Brazil takes the lion’s share of the trade, but to a lesser degree than in the northbound leg, this time accounting for approximately 70 percent of ECSA imports from North America. US customs data derived from Global Trade Information Services (GTIS) showed a significant uptick for Brazilian container imports of mineral fuels, precious metals and organic chemicals in Q1.

Mixed economic signals make it hard to predict the future for this route. In February, Fitch Ratings downgraded Brazil’s credit rating from BB to BB-minus, taking it deeper into speculative junk territory. However, two months later the IMF upgraded Brazil’s GDP outlook for both this year and next. The IMF said that it now expects the country’s economy to grow by 2.3 percent in 2018 (instead of 1.5 percent as expected in October 2017) and by 2.5 percent in 2019 (instead of 2.0 percent).

Despite its junk credit status Brazil has continued to attract less risk-averse foreign investment, while a recovery in the commodities market has also helped pull the economy out of the deep recession suffered in 2015-16.

That is not to say everything is rosy. The country will hold a general election in October, but at this stage the outcome is far from certain with voters angry after years of political scandal. Former president (2003 to 2010) Luiz Inácio Lula da Silva of the Workers’ Party (PT) was jailed for 12 years in April on corruption charges. Despite his incarceration and Brazilian electoral laws forbidding him from running, Lula is comfortably ahead in opinion polls, leading nearest rival Jair Bolsonaro, an extreme right-wing candidate, by around 20 points.

The list of candidates will be finalised in August, but it remains to be seen if a change in political leadership will alter the economic policy. Much will depend on which candidate receives Lula’s endorsement.

The Argentinian economy has been hampered by a drought that slowed agricultural production, but economic reforms are not delivering results as quickly as hoped. Until very recently, the peso currency was at a record low versus the dollar, which made foreign-debt repayments more expensive and added to the high inflation rate that current stands at 25 percent, about 10 points above the central bank target.

The peso recovered some ground earlier this month when the central bank hiked interest rates up to 40 percent, while the country has requested financial assistance from the IMF (reports indicating a loan of $30 billion). With more benign weather conditions and less currency volatility there is every reason to expect more from Argentina’s container imports and exports soon.

There are only five weekly services operating in the North America-ECSA trade, four of which deploy a total of 30 ships of approximately 6,000 teu in size and one service using nine vessels of 3,400 teu. As of April 2018, the four major players in the trade were MSC (operating nearly 30 percent of nominal capacity), Hamburg Sud/Maersk Line (27 percent), Hapag-Lloyd (23 percent) and CMA CGM (15 percent).

Based on forward schedules Drewry anticipates that capacity will rise in May and June as a consequence of an extra loader and ship upgrades on the MSC/Hapag-Lloyd/ONE – GS1/US Gulf/ANG service, taking the average ship size on the loop from 6,100 teu to 6,230 teu.

The decision to operate an extra loader is puzzling considering how over supplied the trade is. Drewry estimates that ships on the southbound voyage are not even half full while on the northbound leg ship utilization has struggled to get much above 60 percent in the past year or so.

With such poor utilisation, North America-ECSA spot market freight rates tend to stay in narrow, low band. Drewry’s Container Freight Rate Insight shows that benchmark spot rates from Santos to New York were about $2,600/40ft in April, where they have resided for most of this year, while New York to Santos spot rates have stuck close to $1,200/40ft.

It’s likely to be a tough grind, but Drewry expects demand in this trade to see gradual improvement during this year. Given the over supplied situation there is unlikely to be any significant change to freight rates.

Shipments of export cargo and import cargo in international trade need automated payment processes.

Bean Counters Be Gone

The container liner shipping industry carries about 60 percent of the goods by value that are moved internationally by sea. To do so, container shipping lines deploy about 5,100 containerships worldwide and provide approximately 400 scheduled liner services, most of which sail weekly.

Drewry estimates that in 2017, the global containerized trade of 207 million teu of ocean containers required around 1.26 billion freight invoices to be issued, verified, paid, and reconciled. With the current low levels of automation of payment processes among shippers, forwarders and shipping, we estimate a total process cost of $34.4 billion annually.

The impact of the costs and inefficiencies on each stakeholder diminishes as the stakeholder gets larger in size. Smaller stakeholders tend to be more reliant on spot markets where more of the processes are manual, freight rates and supplier bases are most volatile and most of the invoice errors occur. Larger stakeholders tend to rely more on long-term contracts which allow for IT solutions to be developed that, after the initial setup cost, provide for nearly frictionless freight invoicing, checking and settlement processes.

Regardless of the size of the stakeholder, the prevailing inefficiencies in invoicing and reconciliation processes pose a significant market opportunity for technological disruptors, provided they address the underlying industry issues by offering simplified and/or automated invoicing and payment practices; and creating sufficient guarantees so that market participants can drop the antiquated practice of “cash against documents.”

In a new white paper (“Invoicing and payment processes in global container shipping: ready for disruption?”), sponsored by Mastercard, Drewry examined the current payment practices and the reasons why they exist. The paper concludes that the prevailing inefficiencies pose a significant market opportunity for technological disruptors. In particular, the paper posits that tremendous efficiency gains can be achieved through technological solutions that: support the simplification and/or automation of invoicing and payment practices, especially for small and medium sized shippers and forwarders; create trust or provide payment guarantees between stakeholders so that cash-against-documents practices are no longer required; and streamline and solidify the end-to-end workflows of quotations, booking, and fulfillment of the transportation service as booked, in alignment with invoicing and payments across the transportation chain without errors and re-work.

Expanding ocean fleet is carrying more shipments of export cargo and import cargo in international trade.

Drewry: Overcapacity Fears Over-Hyped

Predicting containership fleet growth is probably the most contentious and hardest task for any forecaster. The orderbook is constantly evolving as deliveries are made and new orders come in, while demolitions and the occasional cancellation also reduce the pot. Furthermore, quite often the scheduled delivery date does not match with the actual delivery date, making pinning down a baseline like trying to hammer a nail in jelly.

According to different commenters, 2018 is either going to bring a tsunami of new capacity that will drown the container market’s nascent recovery, or newbuild deliveries will largely be manageable. The latter is Drewry’s opinion, as explained in more detail in the latest Container Forecaster.

Orders with a 2018 delivery schedule first appeared in early 2014 and since then the figure has swelled with every new order and slippage from previous years. The expected sum for 2018 reached a peak in October 2017 when the unadjusted orderbook had 1.6 million teu slated. With slippage from previous years added the expected total for the year was close to 1.8 million teu.

Knowing that the scheduled orderbook never matches reality, Drewry includes forecasts for slippage, scrapping and new orders to arrive at a real-world estimate for fleet capacity over the next five years. Even after said adjustments, such was the weight of the 2018 delivery schedule in October 2017 that at the time we predicted supply growth would outpace demand, resulting in a lower reading to the Drewry Global Supply-Demand Index.

However, since then the orderbook has undergone some subtle maneuvers, which have had a positive effect on our supply-demand equations. While the sum total of confirmed new capacity due to arrive through 2022 hasn’t much changed, the delivery breakdown by year has been significantly altered as a consequence of owners delaying a number of deliveries.

This smoothing process means that as of January 1, 2018, the unadjusted orderbook schedule for 2018 shrunk by approximately 150,000 teu to stand at 1.46 million. Based on deliveries in 1Q18 and what is scheduled for the remainder of the year as of 18 April, Drewry expects the full-year delivery total to be in the region of 1 million to 1.2m teu. In essence, over the space of six months owners have pared back the 2018 total by as much as 600,000 teu.

If our forecast is correct the annual delivery total for 2018 will be broadly unchanged from 2016 and 2017, which marked a significant slowdown compared to the previous six years. Crucially, the new supply growth forecast for the current year is lower than demand, meaning we expect the global supply-demand index to nudge upwards this year. The market will still be over-supplied, but not catastrophically so, and certainly showing signs of improvement.

It is important to add that even though the global supply-demand index for the year is expected to be higher, it will start off lower due to the top-heavy delivery schedule in 2018 (see Figure 4). The timing could not have been worse for carriers as it created negative sentiment for the crucial annual Asia-Europe and Transpacific contracting seasons.

While we are anticipating a more benign overall supply scenario for 2018, it would be remiss not to mention that pressures will still exist and vary in severity trade by trade as a consequence of the growing share of Ultra Large Container Vessels (ULCVs) of 18,000 teu and above in the orderbook. ULCVs, with their limited deployment options, made up just 5% of deliveries in 2013 in terms of teu, but have since risen to one-third by 2017. Based on the current orderbook, the upwards trend will intensify over the next few years.

Looking further ahead, the low-level newbuild contracting of 2016-17 means that there is not much scheduled for delivery post-2019, most of which comes from slippage caused by deferrals from earlier years. Based on Drewry’s current projections, there is a clear need for extra newbuilds for 2020 onwards to satisfy the expected cargo growth.

For the record, were no new orders to be placed in the next few years the supply-demand index would shoot into the stratosphere, hitting an unprecedented reading of 108 (100 equals supply-demand equilibrium) in 2022.

That won’t happen of course and new orders, such as the pending mega-ship order from Hyundai Merchant Marine, will eventually fill the void. At the moment, Drewry is of the opinion that new orders will be appropriate to demand needs, thanks to a combination of financial constraints and greater capex discipline brought about by M&A, although we recognise that there are major risks to that assumption, primarily from state-backed entities that can play by their own rules.

The reality of supply growth in 2018 is far less frightening than it was previously. We expect new ordering activity to rise off the floor, but stay at a level that incrementally improves the supply-demand balance over the next five years.

Slow and Steady Recovery for Container Shipping

The outlook for the container shipping market in 2018 and 2019 is a combination of healthy demand growth that will outpace the fleet; resulting in a better supply-demand balance and slightly higher freight rates and profits for carriers, according to Container Forecaster, published by global shipping consultancy Drewry.

“The bad news for carriers is that they are unlikely to see the very strong demand growth rates of early 2017 for the foreseeable future,” said Simon Heaney, senior manager, container research at Drewry and editor of the Container Forecaster. “The good news is that while port handling growth may have peaked, they can still expect more than adequate volumes for at least the next two years.”

Container Forecaster includes Drewry’s forecasts for world and regional container port handling, the containership fleet and how those will combine to affect freight rates and carrier profitability through 2019.

Subtle changes to the orderbook, mainly in the form of delivery deferrals, have softened this year’s new capacity burden and had a positive effect on Drewry’s supply-demand equations for both 2018 and 2019.

“The top-heavy delivery schedule for 2018 with the majority of ULCVs being delivered in the first quarter has depressed our supply-demand index, but the balance will improve as the year progresses,” said Heaney. “Unfortunately for carriers this won’t come soon enough to erase the negative sentiment for annual contracts, hence why we only anticipate a small uplift in average freight rates for the year.”

Heaney added that renewed newbuild contracting activity is not yet at the level that risks worsening the supply-demand balance. “For now, we are optimistic that new investment in containerships will be appropriate to the demand needs,” he said.

Drewry’s forecasts were finalized before the escalation in trade hostility between the US and China. “We did build in some element of trade deflation based on past rhetoric and actions,” said Heaney. “A trade war is not yet inevitable, but given the lack of details, quantifying the risk to container shipping is very difficult. For example, much of the hi-tech goods considered liable to tariffs will be airfreighted rather than move on the water. In a worse-case scenario we believe as much as one percent of the world’s loaded container traffic could be exposed, and were the situation to become real we would clearly have to revise our demand forecasts downwards.”

There are more shipments of export cargo and import cargo in international trade between Asia and Africa.

Southern Africa Renaissance

Asian exports to Southern Africa grew by 5.6 percent in 2017, although the resulting annual count of 772,000 teu is still below the 807,000 teu which moved in 2013.

Broken down by Asian sub-region, according to Container Trade Statistics (CTS) last year’s exports grew fastest from North Asia, which rose by 6.8 percent to 175,000 teu, closely followed by Southeast Asia (up 6.3 percent to 133,000 teu) and Greater China (up 4.9 percent to 464,000 teu).

Last year’s recovery put an end to a miserable run of three years of either declining or flat volumes. Based on the start to this year and brighter economic prospects for the inbound region, Drewry expects 2018 to see southbound Asia to Southern Africa volume surpass that of 2013.

After two months of 2018, headhaul shipments in the trade were up by a staggering 27 percent to 132,000 teu, although that rapid rate has to be put into context as a later Chinese New Year this year has skewed direct monthly comparisons. A better guide for the underlying growth in the trade comes from the rolling 12-month average, which returned a rate of 10.5 percent in February.

The IMF is currently forecasting steady GDP annual growth for South Africa over the next five years of approximately two percent, which would reverse the decelerating trend seen in the first six years of this decade. While the macro-economic situation is more positive the country still faces the usual challenges and new President Cyril Ramaphosa will need to find a way to bring down the high unemployment rate and national debt. A mooted currency depreciation designed to make the country’s exports more competitive could dampen the inbound growth.

Despite the upturn in demand, there has been relatively little action from carriers in terms of services. There are currently 11 weekly loops serving the Asia-Southern Africa trade and the last significant addition was made towards the end of last year when MSC started the ‘Ingwe’ service using nine ships of around 8,000 teu. Recent fluctuations in monthly capacity have revolved around void sailings with three counted in January and six in both February and March.

Even with more blank voyages announced for the coming months Drewry expects effective capacity will be around 15-20 percent higher in April and May than in the same months last year.

Headhaul ship utilisation is estimated to have declined by around 5 percentage points in February, although it should be added that ships are much fuller than compared to a year ago. Nonetheless, the softening load factors has led to some erosion in spot rates; Drewry’s Container Freight Rate Insight reported that Shanghai to Durban spot rates lost about $200 in March to reside at $2,600 per 40ft container. This is still around 25 percent up on the same benchmark rate in March last year.

Asia to South Africa spot rates are still close to the seven-year peak even after the recent softening. Void sailings and continued strong demand growth should see prices pick up again soon.

Asia to Med trade saw slower level of shipments of export cargo and import cargo in international trade.

Med Trade Loses Momentum

Following bumper growth in the second and third quarters, box traffic from Asia to the Mediterranean finished last year with a bit of a whimper. Shipments in the fourth quarter rose by only one percent year on year as a decent performance in the East Med region was effectively wiped out by a sudden slump to West Med imports.

Asian exports to the East Med increased by five percent in the fourth quarter, only about half the year-on-year rates that were achieved in the two previous quarters, according to the latest data release from Container Trade Statistics. However, while there was still growth in East Med, the West Med trade went into reverse, falling by 3.4 percent to register the first decrease in nine quarters.

Despite the weaker than expected end to the year, based on CTS’ first release combined Asia to East and West Med volumes reached 5.5 million TEU last year, an increase of 4.4 percent on 2016. That figure maintains the healthy trend for westbound volumes into the Mediterranean, which have added approximately 1.1 million TEU since 2012.

The East Med countries making the biggest contributions to last year’s higher westbound trade were Turkey, Ukraine, and Slovenia, which between them were responsible for approximately 110,000 TEU of the additional 150,000 TEU imported into the region from Asia. Trade to Turkey and Ukraine last year benefitted from (relative) stabilization on the political and social fronts. Should conditions improve further there is every reason to expect further gains in container traffic, although it is unlikely to be at the same breakneck pace seen last year.

Another strife-ridden country, Egypt, is yet to emerge the other side in relation to inbound container volumes. Some 50,000 TEU of Asian imports to the country was lost in 2017 (from 311,000 TEU in 2016), as a number of IMF-mandated austerity reforms weakened consumers’ spending power, from the introduction of VAT to currency devaluation. Damage to the country’s tourism industry from terrorist attacks also played a role in lowering inbound shipments.

There are signs that the worst is over; foreign reserves and consumption are rising, while inflation has fallen, boding well for a container recovery this year, although next month’s presidential elections could set things back if they trigger another round of social and political unrest.

Growth in the West Med stemmed almost exclusively to the three largest markets: Italy, Spain and France. The West Med power trio collectively added about 105,000 TEU in Asian imports to the region, which saw its annual net addition shrink to about 75,000 TEU on account of losses elsewhere, most notably in North Africa where Libya’s inbound trade saw a 15 percent decline (to ~55,000 TEU) and Algeria decreased by 7 percent (to ~295,000 TEU).

Containership capacity in the westbound Asia to Mediterranean route continues to rise incrementally, driven by the cascade of bigger ships into the market rather than new service starts. Drewry research indicates that effective monthly capacity will pass 600,000 TEU in March, which would represent an increase of nearly 20 percent over the same month in 2017. There is unlikely to be any let up in the ship upgrading process this year as newbuild deliveries for the Asia-North Europe trade will displace exiting tonnage into new territories, with Asia-Med being a leading recipient.

Asia-Med spot rates, as elsewhere, have mounted their usual pre-Chinese New Year comeback. Drewry’s World Container Index last week reported a Shanghai to Genoa benchmark rate of $1,650 per 40ft container, a rise of around 40 percent against the going rate at the end of 2017. We expect rates to soften now that the factories are shuttered for the festivities, before stabilising through the rest of the year.

Despite a general softening in Asia to Mediterranean trade at the end of 2017, we remain confident that this will be one of the better performers in 2018 thanks to improving conditions in major importing countries such as Turkey, the Ukraine and Egypt.