According to the first reports we have on one-year contracts concluded in early 2020, shipping rates are generally stable in relation to last year but are accompanied by specific temporary fuel surcharges. These are negotiated on a case by case basis in line with the market trends, as indicated by the Platts and Bunkerworld price indexes.
The Asia-Europe base port to base port import market, excluding cargo-handling, should settle on the following average pivot prices for 40' dry and HC containers:
On the trans-Pacific market, which is very dependent on relations between China and the United States, we expect the market consensus to be as follows if the existing status quo is maintained:
NB: These rates are all ship-to-ship or free-in/free-out, excluding THCL and THCD.
We note that 20' dry rates are getting closer year by year to 40' rates, which illustrates the steady decline in the use of this type of equipment.
The reefer market is clearly on an upward trend despite massive newbuilding programmes. Demand is continuing to grow more quickly than supply, above all because of Chinese demand for European meat following the latest swine fever pandemic. This will clearly be a source of operating margin for shipping companies in 2020.
The current overheating of the market, as the Chinese New Year approaches, should normally dissipate from mid to late February as capacity gradually returns.
Once again, on the major East-West routes (except trans-Atlantic ones), structural overcapacity is establishing itself. New ships are due into operation in the fleets of shipping companies COSCO and Hyundai from mid-2020 on. This influx will aggravate a situation already marked by overcapacity.
In addition, transport supply has clearly broadened. The containerized Silk Road rail lines have become fully operational and will continue to expand in 2020. We are, notably, expecting to see new controlled temperature services. In the normal course, some shipping cargo volumes will probably be transferred to the railways, even if the original aim was for them to compete with air transport.
Cargo transported on the Northern Sea Route will on the other hand will be too limited to have an impact on rates on the classical route via Suez.
Transit times should generally remain as bad as they were in 2019! Too much additional capacity is expected to be able to envisage increasing ship speeds. Increasing fuel prices and their effect on transport costs, notably as a result of IMO 2020, will not help in this respect either. It is hard, therefore, to imagine the three major shipping alliances deciding to increase commercial shipping speeds.
It should nevertheless be noted that, according to Upply's data, the numerous blank sailings seen in recent months, combined with the use of different fuels close to the coast or in sensitive zones, have resulted in transit times being shortened by several days on voyages between Asia-Europe. This is still a minor phenomenon, however.
Latest forecasts from the OECD indicate that the world economy will grow by 2.9% in 2020, while the World Bank is predicting 2.5% growth. A marked slowdown in physical trade in goods is expected, even if trade does not entirely correlate to the economic forecasts.
The major retail sector is struggling to adapt in Western countries: at best, annual volumes in this sector are expected to be stable if not slightly reduced. There is a less negative outlook in other major sectors like food and industrial products, where growth is expected to be strong if the business volumes referred to in current tender calls is to be believed.
Political uncertainty and tensions between states are persisting and generally causing damage to the business climate. These are a key factor in the low growth expected in 2020.
None of the fundamental problems has been completely settled, starting with bilateral relations between China and the US. China's ambitions have now clearly been set out. Europe, too, is emerging from its naivety. By proposing a four-year extension to the highly particular and controversial group exemption enjoyed by shipping companies, the European Commission is clearly showing its concern to preserve the interests of the 2M "European" alliance against the threat posed by the Chinese "steamroller".
Whether it be in Iran, Iraq or the Strait of Hormuz, the critical situation in the Middle East is also a worrying source of political instability. But this region has no monopoly in this respect. Hong Kong and Taiwan are also potential sources of tension. New Caledonia could also return to public attention via the new act related to the self-determination referendum due to take place in September. Territorial waters can also excite ambitions. In Africa and South America, we see tensions developing over coastal areas alongside major shipping routes. An eye needs to be kept on their potential impact on sea trade.
Faced with these threats, the cost of specific insurance cover can only increase.
In our forecasts for 2019, we raised the question of the possibility of a new disruptive digital operator emerging, comparable to Amazon or something similar, and taking advantage of the particularly attractive conditions for newcomers to the industry. In the end, the industry was not disrupted in this way in 2019 in a market which has reconsolidated. Strategic choices, reticence on the part of banking pools and lack of visibility regarding short and medium-term profitability in the sector dampened enthusiasm perhaps.
2020 will be a crucial year for evaluation of the relevance of the "one-stop-shop" business model adopted by certain shipping companies. Here, one has in mind the link-up between CMA CGM and CEVA, while, on the Chinese side, Sinotrans is under the spotlight.
The big problem with this strategy concerns longer three to five-year contracts because of the major commitments and investment required of the two contracting parties. We come back to the eternal choice between economies of scale and strategic control. Shippers reduces their staffs but accept in return the intrusion of a third party in their logistics management.
Whether it be in Sri Lanka, Djibouti, Trieste, Gdynia or Lomé, 2019 will remain marked by the steady growth of investment by Chinese companies in port cargo-handling. A dramatic announcement at the end of last year confirmed this trend. CMA CGM announced that it was selling its holdings in 10 port terminals owned by Terminal Link, the joint venture it set up with China Merchants Port. In general terms, one can imagine that Chinese shippers are going to start making strenuous efforts to switch traditional FOB contracts to CIF.
The Chinese companies, particularly ZPMC, have also established a virtual global monopoly over the construction and delivery of new generation container gantries.
Finally, we expect major investment programmes in 2020 in Europe by terminal operators seeking to keep up with the growth in reefer traffic.
The outlook is less gloomy and catastrophic than it was at this point last year. The affair has not been finally settled but the situation has become much clearer since the resounding vote in favour of the Conservatives in the general elections held in the United Kingdom in December.
There is no shortage of historical precedents in the European Union concerning trade relations between France and Britain. A preferential bilateral agreement under the aegis of the EU, in the same spirit as the Cobden-Chevalier treaty in 1860, could be reached quite easily and quickly by establishing maximum preferential duties of five and 10% for key merchandise (cf animated chart for trade in goods).
The first stage in the desulphurisation of the shipping industry is now in progress following the entry into force of IMO 2020. The second stage will concentrate on the medium-term decarbonisation of the industry using LNG, hydrogen and other fuels.
Implementation of IMO 2020 will not be without pain. I forecast last year that long contracts would incur temporary surcharges of USD 50-150 per container. It would seem that this increase in transport costs is occurring. Shipping companies generally are showing their ability to pass on the surcharges but work still needs to be done in three key areas:
At this start of the year, moreover, we are seeing a small spike on the LSFO bunkering market in Singapore, which is creating delivery delays and major difficulties in passing on the whole of the surcharge on the intra-Asian market, where freight rates are already structurally very low.
Finally, on a more technical note, operators are starting to have to face up new constraints linked to implementation of IMO 2020, which promise to have major consequences: