Category Archives: Shipping Industry Forecast 2015

the demand for shipping containers is rising

What Does Rising Profits in Container Shipping Sector Mean?

It seems more commonplace to hear accounts of financial recovery and continued prosperity coming from both established and emerging markets all over the world. This kind of improved economic performance is reassuring to analysts, and gives investors the added confidence they need to pursue investment in foreign marketplaces and business opportunities abroad.

Although rebuilding the international economy has taken some time, the strengthening of industries and infrastructure through investment and improved operational efficiency over the last 7 years, has created a number of profitable investing options for investors and corporations alike. In particular, the investment-community is benefiting from opportunities that invest in the world’s economic growth, and maintain the momentum of prosperity that has powered world trade, for nearly a decade.

The investment community is benefiting from opportunities that invest in global economic growth Click To Tweet

Make no mistake, the shipping industry has its critics who routinely challenge the industry’s profitability. Many focus their argument on passing challenges like over-capacity, rate drops and lack of port/infrastructure investing to accommodate the sector’s growth. But, the truth about shipping investments is that it is not only the container ships that are getting bigger, container shipping line profits are too. 2013 and 2014 financial results provide us with some great examples.

In the third-quarter of 2014 Maersk Line recorded a profit of USD $685 million (USD $554 million) and CMA CGM has seen their profits rise by as much as 60 percent in a single quarter. Container lines are not the only ones enjoying prosperity. The GCC had a remarkable year in 2014 as well, with companies like DP World emerging as a fine example of a challenging region that is benefiting from the growth in world trade. Even Drewry says container shipping profits will improve in 2015 and is looking very favorably on the coming year.

Container lines are not the only ones enjoying prosperity. Ports and terminals are profitable too Click To Tweet

All of these rising profits tell me three things. One, over-capacity does not affect demand. Two, shipping ports and operators are making investments into infrastructure and improvements, and three; container freight rates will continue to climb through out 2015. All of this begins to point to an appealing investment opportunity that has the potential to deliver a great investing experience to the investment community.

container ship at abu dhabi ports

2015 Will See an Increase in Demand For Shipping Containers

A recent research study conducted by Barclays suggests that the recent drop in oil prices is boosting consumer spending, and in turn increasing the United States’ demand for Chinese imports. Based on the positive data presented in their report, the investment bank has increased its container volume growth forecast (for the U.S. market) by nearly 1 percent, raising it to 5.4 percent for 2015. From a global perspective, world container trade reached an estimated 152 million TEU in 2014, and is forecast to grow 6.5 percent over the next two years.

A Barclays research study suggests that the recent drop in oil prices is increasing U.S demand for Chinese imports Click To Tweet

Brent crude oil prices averaged $110 per barrel From January 2014 through September 2014, and then values very quickly plummeted to approximately $40 per barrel. Looking ahead throughout 2015, Barclays predicts that oil will maintain an average price of $44 per barrel. This is likely to translate into bigger profits for leading container shipping lines, especially those who have invested in Triple E vessels.

For every $10 drop in the per barrel price of oil there will be $1.1 billion in consumer spending on Chinese exports Click To Tweet

According to theBarklay’s sensitivity analysis, this improvement suggests a [potential] increase in China’s exports to the United States of nearly 2 percent. Offering a number-figure for the growth, industry analysts forecast that for every $10 decline in the (per barrel) price of oil, there will be an additional $1.1 billion in consumer spending on Chinese exports.

We expect a potential positive impact of lower oil prices on trade volumes due to higher discretionary consumer income. For example, the Barclays U.S. Equities Research team estimates that a 20 percent decline in fuel prices could increase U.S. consumption by $70 billion.- Barclays

Barclays recognizes that lower oil prices are having a positive impact on consumer demand and the global container shipping industry is experiencing a boost in profitability. Barclays’ analysts say they expect the economic prosperity and investment in global trade to continue into 2016 and throughout 2017, resulting in a 5.2 percent year-over-year improvement in container demand.

Barclays' analysts are forecasting a 5.2 percent year-over-year increase in worldwide demand for shipping containers. Click To Tweet

Trade to the United States is not the only international destination to increase their demand for Chinese goods. Trade between China and Iran (for example) has been growing at a rate of nearly 40 percent per year since 2012, driven by rapidly rising demand from consumers. The import of household goods from Asia, mainly into Iran and UAE, has caused container volumes on Asia to Middle East and Asia to the Indian subcontinent trade routes, to experience a significant increase. According to analysts, this upward trend in the demand for shipping containers will continue at a rate of 7.4 percent over the next three years, and easily outperform Barclays’ global container growth forecast of 5.2 percent.