Drewry said the shipping industry is set to perform better than expectations this year with volumes showing a downturn that is not as bad as initially thought.

The maritime research firm said in its latest Container Forecaster report, that the world container port throughput "confounded expectations" in the Q2 — and most probably in Q3 too — to register a far smaller decrease than envisaged of around minus 8% year-on-year as opposed to the anticipated 16% drop as published in June.

"Not quite a full recovery then, but first-half port throughput performance was sufficiently good enough for us to upgrade the annual global forecast for this year to minus 3.3%, up from minus 7.3% as given in June," Drewry said in its report. 

"Similar to economic analysts, we have been backwards and forwards with this year’s demand outlook. It now seems that our interim update in May and the June reports were far too pessimistic," it added, noting that container trade has been resilient during the pandemic as consumer confidence has been given a shot through government support.

Worries linger still due to COVID-19 impact

Drewry explained that the initial forecast was based on the notion that given the "seismic impact" of the the COVID-19 pandemic on the world’s economy in Q2, port handling was also perceived to sink by a much larger margin.

"While we are certainly more optimistic about the market’s outlook than three months ago, it is difficult to shake the nagging feeling that some of the recent upturns in container traffic are built on less than solid foundations," maritime research firm said.

It added that the coronavirus "is still the number one risk" to its forecasts and it remains weighted to the downside, with a second-wave outbreak having the potential to shatter the fragile economic recovery, with consequential impact on global port handling.

Drewry noted that another worry is that even as many of the state support programmes have been extended into the winter months, once governments start to unwind these schemes, unemployment could rise steeply and reduced household disposable income would dampen consumer purchasing.

Equally, it said that once entertainment activities fully resume there could be less discretionary spending on goods.

"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. This year, ocean carriers have controlled capacity more tightly than in previous crises and were able to secure very high load factors, very high rates and lower costs," it said.

Drewry added that it now estimates that the industry secured an operating profit (EBIT) of around US$3.5 billion and a margin of 7.7% in Q2, easily the best quarterly performance in many years.

Higher Q3 performance 

Drewry anticipates that Q3 will set an even higher watermark for carrier profitability given the rapid inflation in spot rates during the period, before subsiding a little during a slower Q4 season.

"Following meteoric third-quarter spot rate increases, we have upgraded our guidance for industry-wide operating profit in 2020 to US$11 billion, up from US$9.2 billion as forecast in the June edition. This would represent the industry’s most profitable year since 2010 (c. US$20 billion)," it added.

Despite this, Drewry said the major influences driving the recent freight rate increases are: 

• The higher level of concentration of the ocean carrier industry, combined with new, tighter capacity management discipline among carriers;
• Unexpectedly strong demand in North America and Europe, partly on account of replenished inventories;
• A seasonal rush to bring in cargoes before Chinese factories close for the Golden Week holiday at the start of October;
• Limited container inventory stocks in Asia, not helped by service disruptions (blank voyages etc.)

Drewry said another major risk is regulatory oversight.

"We warned previously that posting bumper profits during a pandemic could raise the hackles of cargo owners and draw unwanted attention from regulators, and lo the industry is now on the watch of China’s Ministry of Transport (MOT) and the US Federal Maritime Commission (FMC)," it said. 

"Thus far authorities have refrained from imposing any hard rules, but a number of carriers immediately withdrew Transpacific GRIs and reinstated planned void sailings for October. This places carriers in a very tough spot. Any loss of operational autonomy would put them at the mercy of the highly unfavourable supply-demand fundamentals and it is unlikely that they would find such heavyweight supporters to plead their case if rates fell sharply," it added.

In the meantime, Drewry said lines will "somehow have to carefully navigate a path to ensure they stay profitable, but not 'too' profitable."

Next year remains unpredictable

"Container trade has so far proved quite resilient as consumer confidence has been given a shot through government support. Next year is still highly unpredictable and hopes for the V-shape recovery is starting to look overly optimistic," Drewry said. 

"We think carriers have realised the opportunity that COVID-19 has given them to buck the underlying supply-demand pressures, but that they ultimately will not be allowed to fully deploy those tools in the future," maritime research firm added.