The container shipping sector has been dealt yet another blow as Maersk has revealed that its volume and freight rate forecasts for the full year – initially disclosed in its Q2 report – are likely to be over-estimates.
The company’s previous expectation that Maersk Line’s ‘underlying result’ for 2015 would be $2.2bn has now been revised to $1.6bn. Of the $0.6bn downgrade, $0.5bn is due to lower-than-expected freight rates while a volume shortfall of 100,000 FFEs is responsible for the remaining $0.1bn.
For the third quarter of 2014, Maersk’s average freight rate was down 19.3% year-on-year, while container volumes were up by just 1.1%, both coming in below company expectations.
Maersk’s warning has had a knock-on effect on Hapag-Lloyd. The latter’s IPO, due to close on October 27, has been extended until November 3. The move followed an initial press release by Hapag-Lloyd on October 26, which reiterated its outlook for 2015 as stated in its IPO prospectus, responding to enquiries it received following Maersk’s reassessment. However this must have been deemed insufficient given Hapag-Lloyd’s announcement of an extension to its IPO window and its intention to publish a supplement to its prospectus “in due course”.
Earlier this month, industry forecaster Drewry halved its 2015 forecast for container shipping growth to just 2.2%, in addition to making downward revisions to future years. With capacity anticipated to grow by 7.7% in 2015, the disequilibrium in the market is expected to be only further exacerbated. To put this into context, Drewry’s own measure of the relative balance of container vessel capacity and cargo demand is now at its lowest level since the recession year of 2009 – a score of just 91, with 100 implying equilibrium.
Looking ahead, one major worry for the sector will of course be any rebound in global oil prices. According to the Bunkerworld Index (BWI), the price of fuel in October 2015 is approximately half the price it was in October 2014, a major buttress to profits. But the weakness in demand side growth is the latest reality that liners are coming to terms with – it just hasn’t recovered to anywhere close to what was expected. Perhaps most worryingly, emerging markets have failed to deliver their usual boost to world trade in 2015. According to the Netherlands’ CPB, seasonally adjusted month-on-month export volume growth has averaged -0.5% in 2015, and five out of eight of its monthly growth estimates are negative. If emerging markets do not recover some of their lustre, then further cuts to demand forecasts may well have to be made.