Drewry adjusts container throughput forecast in light of better than expected Q2

Drewry adjusts container throughput forecast in light of better than expected Q2
Drewry's world port handling forecast

World container port throughput has subverted expectations for the second quarter of 2020, registering a smaller decrease than envisaged of around -8% year-on-year, Drewry has reported.

Earlier forecasts in June anticipated a drop of 16% and, while not a full recovery, the port performance for the first half of 2020 was sufficiently good enough for Drewry to revise its annual global forecast.

Now the maritime analyst has updated its figure from June of -7.3% to -3.3% instead for the annual global forecast.

Drewry’s pessimism draws from experience from 2009, where a 1% drop in the global economy translated into a near 10% contraction in global container throughput.

However, this exponential multiplier effect has not repeated during the current crisis.

Ocean carriers have controlled capacity more tightly than in previous crises, able to secure very high load factors, very high rates and lower costs.

Some carriers have said that they have “learnt a lesson” during the COVID-19 crisis on how to manage their business in times of volatile demand which could have long-term repercussions on carrier resilience and profitability.

Drewry has estimated that the industry secured an operating profit of around US$3.5bn and margin of 7.7% in the second quarter of 2020 which is the best quarterly performance in many years.

It estimates that the third quarter will set an even higher water mark for carrier profitability given the rapid inflation in spot rates during the period before subsiding during a slower fourth quarter.

Thus, following meteoric third-quarter spot rate increases, Drewry has upgraded its guidance for industry-wide operating profit in 2020 to US$11bn up from US$9.2bn forecast in June which would represent the industry’s most profitable since 2010.

Many analysts, Drewry included, wrongly assumed that populations, fearing long-term job security, would hunker down and limit non-essential purchases.

Drewry noted that this assumption “discounted the resourcefulness of human spirit when faced with adversity and, perhaps more tellingly, the untapped potential of e-commerce”.

Carriers’ capacity management programmes also generated some additional traffic as blanked sailings or suspended services during the second quarter led to more transhipment taking place.

Volumes have swelled not only on the East-West trades but also in the North-South corridors due to restocking inventories and fast forwarding some orders amongst second wave fears.

However, container handling is still expected to see a small decline between July and September as the spread of the virus has lagged behind in parts of the globe.

Still, Drewry expects it to reach a breakeven point in the final three months of the year.

The virus still remains a risk, with a second-wave outbreak having the potential to shatter the fragile economic recovery which will consequently have an impact on global port handling.

Although many state support programmes have been extended into the winter months, once government start to unwind these schemes unemployment could rise steeply and reduced household disposable income would dampen consumer purchasing.

It is also not clear how much frontloading is taking place via stockbuilding which may be concealing a vacuum of cargo at some future point.

Drewry noted that the true test of carriers’ discipline will come when these exceptional circumstances caused by the pandemic recede and the more traditional supply-demand dynamics reassert themselves.

It expects the commercial discipline to sustain but noted that there is some risk should the resolve waver and one or more players break ranks and take rates lower.

Additionally, the industry has been placed on the watch of China’s Ministry of Transport and the US Federal Maritime Commission for posting bumper profits during a pandemic.

As a result of this, a number of carriers have immediately withdrawn Transpacific GRIs and reinstated planned void sailings for October.