Covid19 Archive-COVID-19 to cut shipping container fleet and slow pricing recovery



COVID-19 to cut shipping container fleet and slow pricing recovery

The outbreak of the coronavirus has disrupted container supply chains around the world and depressed the demand for vessels and boxes. It will lead to a contraction in the shipping container fleet and keep prices and lease rates under pressure in 2020, although better than in 2019. Drewry’s latest published Container Equipment Forecaster report shows that in 1Q20 newbuild prices and lease rates for all of the main categories of containers were up on 4Q19 and 2019 as a whole.
Primarily, this was the result of improving levels of optimism regarding the outlook for world trade. The US and China signed Phase One of a new trade agreement and the Brexit withdrawal deal was concluded. From the container manufacturing perspective, it appeared as if efforts by China’s main box builders to secure minimum prices for their equipment was having some success. Lease rates also hardened, rising between 15% and 20% compared with 4Q19 for dry freight (20ft, 40ft and 40ft high-cube) equipment.
But these increases masked intense volatility in the market during the period. At the start of the year, the price of a 20ft standard container stood at about US$1,750. By the end of February, it had increased to as much as US$2,150, before a sharp decline to approximately US$1,900 in late March. The severity of COVID-19 and the lockdown in China and subsequently in large parts of the rest of the world was the cause of the slump.
Total box output (dry freight and reefer) in 1Q20 was one of the lowest in a quarterly period; 33% lower than 4Q19 and 35% below that of the corresponding period of 2019. The dry box sector was the worst affected with a year-on-year decline in production of 40%. This compared with a 4% increase in the output of reefer containers as the shift of cargo from specialised reefer and air freight services to liner services and containers continued.
Drewry expects the remainder of the year to be challenging with orders dominated by ocean carriers’ and lessors’ needs to replace ageing inventories. With few companies expected to expand their fleets this year, Drewry expects the ocean-borne fleet of containers to decline marginally, but it could be worse depending on the recovery in trade volumes. This would represent the first reduction since the financial crisis of 2009 when the pool of equipment declined by 4%.
When it comes to prices, Drewry expects dry freight newbuilds to sustain their quarter-end value through the remainder of the year. Based on the poor financial position of most Chinese manufacturers, they will rather mothball some capacity rather than lower prices.
Our view
Even though the Covid-19 pandemic will result in a decline in the size of the container equipment fleet in 2020, newbuild prices and leasing rates are expected to firm. A strong recovery in trading volumes in 2021 will reinforce this situation.
Source: Drewry


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