The fortunes of the shipping industry in 2017 seem to be something of a mixed bag across the sectors.

Baltic and International Maritime Council (BIMCO) says the shipping industry has its work cut out for it in 2017 and anticipates another year of die-hard competition, which will now include tankers.  The container shipping industry bit the bullet in terms of demolition and consolidation to help the market to recover in 2016 and the dry bulk sector needs to do the same if it is to recover.

IHS Markit also anticipates a tough year for shipping with the fortunes of tankers joining those of containers and dry bulk, which have been an extended downturn for some years, because supply may overwhelm the world’s capability to consume fossil fuels.

The fortunes of shipping are directly related to the world and South African economies and Peter Besnard Chief Executive of the South African Association of Ship Operators and Agents (SAASOA) does not believe there will be any improvement until the third quarter 2017.

MV Chacabuco
MV Chacabuco

“Look at the number of container ships laid up. Some 435 ships laid up world-wide which is 1,7 million TEU as of November 2016 that is not in circulation. That tells a story,” he said.

He was not expecting much local economic activity until late February or March and some manufacturers were opening later than usual because of the poor state of the economy.

The International Monetary Fund (IMF) in its World Economic Outlook forecasts global growth at just 3.4%, with prospects differing sharply across countries and regions, with emerging Asia and India showing robust growth and sub-Saharan Africa experiencing a sharp slowdown.

GDP growth predictions for South Africa in 2017 vary from 1.1% to 1.8%.

The Organization for Economic Cooperation and Development (OECD) economic outlook for South Africa 2017 projects an economic rebound that will strengthen in 2018, driven by household consumption and investment.

It sees the improved electricity production removing manufacturing bottlenecks which should boost confidence and therefore investment, provided political uncertainties dissipate. Rising production costs, together with the earlier rand appreciation should weigh on exports. However, it states the macroeconomic situation is still difficult as growth is weak and inflation is above the central bank’s target.

The heightened policy uncertainty in the US and Europe could constrain capital flows to emerging and frontier markets according to the World Bank’s Global Economic Prospects report. This could put the Rand could under pressure this year. Its baseline projection is for the South African economy to grow by 1.1% in 2017 on the back of an increase in commodity prices and a modest recovery in global growth. This is up from its estimate of only 0.4% growth in 2016. Nevertheless, the report stresses that the risks to the outlook for South Africa and sub-Saharan Africa lean towards the downside.

FocusEconomics, an international provider of economic intelligence, expects a gradual improvement in the world economy and a recovery in commodity prices to support the SA economy, though ongoing political scandals and the dire state of the labor market will weigh on growth. It expects the economy to expand 1.2% in 2017 and in 2018 accelerate to 1.8%.

In its October Medium Term Budget the national Treasury revised the country’s economic growth downward to 0.9% in 2016 and expects GDP growth to remain subdued. It is looking to a 1.8% GDP growth this year and it expects rising confidence and improved global conditions to give SA a moderate economic growth of 2.4% in 2018.

The container shipping sector has been through a dreadful year evident in the mergers and acquisitions, the Hanjin collapse and the formation of alliances between shipping lies.  2016 saw the merger of CMA, APL and COSCO and China Shipping; Maersk bought Hamburg-Süd, and South Korean shipping line Hanjin collapsed after failing to find a buyer.  The M&A activity is expected to continue to play out during 2017 with K-line, Mol and NYK indicating that they will merge in the second half of the year, says Glenn Delve Director MSC SA.

Glenn Delve
Glenn Delve

He says the bedding down of these mergers is not likely to be smooth as the participating companies run different size vessels, have different operations and ports of call and there could be schedule disruptions. Other uncertainties for the year include Brexit which still has to take its course.

2016 saw an all-time high in the demolition of container ships particularly the Panamax which was squeezed out between the feeder and very large ships, according to Bimco. These demolitions went some way towards reducing the effects of the delivery of new builds, and market conditions improved as fleet growth was lower than demand growth for the first time since 2010

Delve said that even with the removal some 600 000 tons from the market with the Hanjin bankruptcy and the rationalization in other lines global volumes are still below capacity.

Maersk is to scrap eight vessels Panamx vessels in 2017 which represents roughly 1% of its fleet. In a press release Maersk Line COO, Søren Toft said: “This is a small but meaningful capacity reduction, which will contribute to achieving a better balance between supply and demand for Maersk Line.”

Bimco expects a net container fleet growth of around 3.1% in 2017 (1.1% in 2016E). “If demand grows by a multiple of global GDP growth of one or even and the IMF forecast of 3.4% becomes reality, the market will neither improve nor worsen in 2017,” said Bimco Chief Shipping Analyst Peter Sand in his Shipping Market 2016 and Looking Forward review

Philip Damas, head of the logistics practice of Drewry anticipates contract rates to increase for the first time since 2010.

This is drawn from the Drewry Benchmarking Club Contract Rate Index, based on average Transpacific and Asia-Europe contract freight rate data provided confidentially by shippers, increased by 3% in the latest quarter, after having fallen for more than six consecutive quarters.

“The paradox is that rates will increase despite shipping over-capacity continuing to be severe in 2017. But factors such as the higher prices of fuel, the previously unsustainable level of rates and the Hanjin bankruptcy are now weighing heavily on pricing,” said Damas.

Mediterranean Shipping Company (MSC) is expecting a more positive outlook than last year. An uptick is expected on the north-south bound European route with Europe remaining a stable trading partner of SA.

Last year SA’s container volumes dropped by 7% and how much of an uptick there will be in imports depends on the Rand.

Since mid-November 2016 MSC has seen a sizeable uptick in the export of containerized minerals such as ferrochrome, chrome, manganese and copper to China which is expected to continue until the end of March. The minerals are for the manufacture of steel and other forms of manufacturing.

The North Americas are expected to remain stable with a good flow of traffic and a possible 5% increase in volume on these trade routes, but little trade growth is expected from the South American routes.

The wild card is Asia and China where container volumes are expected to grow by 10 to 12%, said Delve.

An eight percent growth in container trade is expected from East Africa as economies there are developing well but West Africa is not expected to show much container growth as these countries are struggling financially as a consequence of low oil sales.

From the Australian side trade will be reasonable and stable at 5-6% with more specialized products being exported from SA to Australia to meet demand as Australian industries close down. Examples are Masonite board, automotive parts from Ford SA and aluminium. The export of citrus to China is also expected to grow with the recent agreement to reduce the steri-requirements.

Overall we are not looking for the big growth of the previous years and by the end of January we will have a good idea of how the year will turn out, said Delve.

MV Maran Poseidon
MV Maran Poseidon

Looking at the dry bulk market for 2017 Alan Olivier Chief Executive of Grindrod said deliveries of vessels had slowed significantly from prior years and the rate of scrapping – although lower in the second half of the year – was significant. 

The expectation is for a further decline in new ships (tonnage) entering the market and therefore, with some scrapping, a modest growth in the overall dry bulk fleet.  “On the demand side, we expect to continue to see growth in seaborne dry bulk demand although not at rates we have seen over the last number of years and therefore we expect improved rates for dry bulk ships in 2017”.

As regards products tankers, Grindrod saw a significant numbers of new build product tankers enter the market in the first half of 2016.  This slowed during the second half and there have been very few new orders placed.

“Although product tanker earnings have declined significantly from those in 2014 and 2015, with the order book having declined we would expect these to be absorbed during 2017 and to see improved rates over those earned in 2016,” said Olivier.