Cargo shipping could see slower recovery

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The global cargo shipping sector might see a slower recovery, as concerns about falling freight rates resurface due to a lingering supply and demand imbalance, analysts said.

Freight rates have continued their rebound this year from a long oversupply-induced downturn, as several major carriers were forced to cut fleet sizes and consolidate with their peers, while South Korea’s Hanjin Shipping Co declared bankruptcy.

However, the number of new vessels delivered to carriers has also peaked this quarter, sparking concerns that the additional shipping capacity could exert pressure on prices once again, Capital Investment Management Corp analyst Rita Hsueh said in a report last week.

The global cargo shipping sector might not see a full recovery until 2019, as new vessels will continue to be launched throughout next year, Hsueh said.

Global capacity is expected to rise 4.5 percent this year, slower than an anticipated 5 percent gain in demand, she wrote
However, global supply is forecast to rise 5.1 percent annually next year, outpacing an anticipated 3.2 percent growth in demand, she said.

“Carriers are not expected to take advantage of rising freight rates to resume the irrational competition that sent prices below cost levels in 2016, as they have been battered and come under heavy financial pressure during the long downturn,” Hsueh said.

She added that global capacity is projected to rise by 1.35 million twenty-foot-equivalent units (TEU) at the end of this year.
In light of market conditions, Evergreen Marine Corp is expected to see softer earnings growth next year, Hsueh said.

Yuanta Securities Investment Consulting Co analyst Chen Chuan-chuan also gave a reserved outlook for Evergreen Marine, but said that larger carriers would be able to outperform their smaller peers.

In a report published last month, Chen cautioned investors that earnings could dip during slower seasons.

However, SinoPac Securities Investment Service Co gave an upbeat outlook for Evergreen Marine, saying that its membership in the Ocean Alliance would begin to bring significant cost savings and the partnership would amplify the advantages of larger carriers following a wave of consolidation.

Since the company joined the Ocean Alliance in April, it has committed 70 percent of its capacity to the partnership, and posted 15.4 percent annual growth in shipping volume and a 4.5 percent fall in costs by the end of the first half of the year, SinoPac Securities analyst Chen Yili said in a report last month.

Evergreen Marine is the world’s sixth-biggest carrier, and commands a 4.9 percent global market share, Chen Yili wrote.
As of the end of the first half, North America was the company’s largest market at 40 percent, followed by Europe at 27 percent and Asia at 23 percent, the report said.

The company is expected to expand its total capacity by 15.8 percent by the end of this year, including 514,000 TEU vessels added to European destinations, the report said.

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