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A better year for container shipping in 2016?

A better year for container shipping in 2016?
The year 2015 was a tough one for the global container shipping market, as freight rates fell sharply in the second half of the year and the overcapacity failed to show signs of improvement. A recent forecast by China’s research house Shanghai International Shipping Institute (SISI), however, pointed to a potentially better year in 2016.

“Based on our data, there will be much lower deliveries of large containerships in 2016 compared to last year, and if the main Asia-Europe trade lane can further tighten its supply-demand, 2016 could well be a better year to look forward to,” the SISI report said.

“Looking ahead, container lines would need to continue with their strict cost control measures, boost their cashflow and improve vessel utilisation. The small to medium enterprises will still find it hard to sustain their businesses this year, but the larger lines may be able to overcome the gloomy situation,” SISI believed.

On cost control, lines can already rejoice in the fact that bunker fuel prices, the main cost factor, have decreased substantially following the collapse of crude oil prices. The benchmark Singapore 380cst bunker price has plummeted to a seven-year low with indications at $168.50 per metric tonne on Monday, according to data from Ship & Bunker.

Shipping lines would also be advised to ensure they remain in alliance arrangements so as to improve overall fleet utilisation and reduce slot wastage on boxships through operational partnerships, the SISI report pointed out. “Owners also need to be rational by not ordering more new ships, while at the same time maximise the tonne-mile capacity for greater efficiency.”

The report added that lines also need to tackle the downturn by focusing on organic growth, customising demands, developing new and relevant business tools and having sound financial management.

Last year, Chinese shipping lines struggled especially during the last quarter, the report recalled. The Shanghai Containerised Freight Index (SCFI) dropped to a 2015 low of 484.14 points on 20 November 2015, representing a 51.9% plunge from 1006.34 points seen at the start of the year. On Christmas Day last year, the SCFI recorded 488.68 points while the Asia-Europe rate was at 573 points, before a rebound on 31 December 2015 to 836.96 points and 1,232 points respectively.

Small to medium size Chinese container enterprises were hit hardest last year, due mainly to a lack of cashflow and low vessel utilisation, even with the consolation of lower operating costs as fuel prices dropped, according to SISI.

While container lines may see a glimmer of hope this year, the research institute painted a grim outlook for dry bulk shipping as it predicted “a wave of bankruptcies” among Chinese bulk vessel owners on the back of depressed rates and shrinking Chinese demand.

The Baltic Dry Index (BDI) has been tracking a downward trend since the last quarter of 2015 and sunk to a record low of 415 points on Monday. The SISI report said that more than 60% of the survey respondents did not expect the BDI this year to rise above 800 points, a level last since in October 2015.