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Box demand to slow by nearly half in 2011, say experts


Thursday, 20 January 2011 12:46

Demand growth in the container shipping industry will slow in 2011 to nearly half of last year's double-digit expansion as strong consumer buying eases in emerging markets, industry experts said.

The box shipping industry has rapidly recovered from the global downturn in 2008-09, which the IMF has named the "Great Trade Collapse", that cost the sector an estimated US$19.5 billion due to a severe slowdown in seaborne trade, reported Reuters.

"Demand growth in 2010 was boosted by the restocking of inventory levels and the recovery in consumer demand from the low levels of 2009," said Tan Hua Joo, analyst with leading container shipping consultancy group Alphaliner.

"This will not be repeated in 2011 as demand trends have largely returned to normal levels."

Demand growth for the container industry, a key indicator of world economic activity, was expected to slow to 7.7 percent from 14 percent last year, according to Alphaliner.

That was closely in line to IMF forecasts last October for a seven percent expansion in global trade, after jumping 11.4 percent in 2010. Trade contracted by 11 percent during the downturn two years ago.

The slowdown in demand will exacerbate the industry's oversupply problem that has prevented shipping companies, many of which returned to profit last year, from passing on higher freight rates to customers.

Supply growth was expected to outpace demand by two percent this year with a flood of new, larger vessels, analysts said.

"Container freight rates have been falling since August 2010 largely due to oversupply as carriers have not withdrawn sufficient capacity during the slack season," Tan said.

Utilisation levels for the past four months have remained below the critical 95 percent mark, indicating freight rates were unlikely to rise.

As a result, some shipping companies were trying to lock in annual contracts as low as $1,050 per TEU, down from spot freight rates of around $1,350 last week.

"We believe that rates will continue to fall south, but the extent to how low rates will fall to is unknown," said brokerage firm GFI Group in its container weekly newsletter.

Boxship profits were seen dropping to US$8 billion this year from an estimated $17 billion in 2010, said shipping consultants Drewry last week.

Despite the slowdown, the container industry was expected to be the main bright spot for the three main freight markets this year.

Oversupply problems in the dry bulk and oil tanker markets were seen being much worse than the boxship sector in 2011.

"While we are likely to continue to see ups and downs in terms of sentiment, we believe the outlook for the next two-to-three years is looking increasingly robust for container ships," said Macquarie Equities Research.