ECONOMY | PETER SAND September 2018 Shipping Market analysis Use tabs to navigate to pages Macroeconomics Dry bulk Tanker Container Macroeconomics Regional and global disputes heighten uncertainty and kill optimism and trade growth Who is really in favour of globalisation at the moment? Shipping surely is, but many of the nations that affect shipping at large, with huge imports and exports of seaborne commodities, find themselves entangled more and more in rolling back free trade right now, at a particularly high speed. The US is spearheading this development, and trading partners find themselves with no other option but retaliation. Starting a trade war is bad for everyone, and shipping is right in the eye of the storm. The most recent round of proposed tariffs, BIMCO estimates, will affect as around 20% of the containerised eastbound transpacific trade, one of the worlds busiest and most important trade lanes. More and more dry bulk commodities are being affected, whereas oil and gas tankers are only affected in a limited way. peter Sand Chief Shipping analyst at BiMCo By early July, the International Monetary Fund (IMF) kept its headline global gross domestic product (GDP) growth projection unchanged from April, at 3.9% for 2018 and 2019. The projection was made just after the second round of tariffs on 6 July. Since then, much more has happened. The speeding trade-war train is moving faster and faster, adding uncertainty to ever more industries, which have to prepare contingency plans for how to handle the uncertainty and subsequent changes to its businesses. In early August, more goods were enrolled in the trade war and long lists of additional proposals were published. The speeding trade-war train is moving faster and faster On top of this, a new sanctions regime involving the US and Iran is putting another layer of stress on a shipping industry that is struggling to generate profits. While keeping the headline unchanged, many smaller adjustments were made to 2018 GDP estimates for major economies, including Latin America, Brazil, Japan and the euro area all of them going one way: down. Its not clear from the IMF data where the balancing upgrade is coming from. Not surprisingly, the IMFs estimate for world trade volumes, especially among advanced economies, was adjusted downwards for both 2018 and 2019 in July. europe Its no secret that many European economies industrial production performance peaked last year. Now it seems as if the slowdown in growth has stabilised. The same goes for the EU monthly manufacturing purchasing managers index (PMI); after falling for six months in a row, it went into reverse in July a sign of stabilising output. Jobs are still being created, although at a slower pace than in 2017. As 29 March 2019 comes within sight, Brexit is taking up ever more political attention. The UKs growth projection was also revised downwards by the IMF in July, to 1.4% (-0.2) in 2018, while the 2019 projection was unchanged at 1.5%. 2017-2019E Annual percentage growth The recent Turkish turmoil is unlikely to have much of an economic impact on the euro area. Spanish and French banks are most exposed, but its a small share of their assets. Politically, its already a murky picture and one that still holds a downside, mostly. GDP growth projections Un In July, the IMF revised GDP growth projections down for large economies such as Germany, France and Italy, among others, for business-activity reasons, as well as because of political uncertainty. 2019E Source: BIMCO, IMF Note: World trade volume, is a simple average of growth rates for export and import volumes (goods and services). US In the lead-up to 4 November, the date when the new US-only sanctions against Iran enter into force, the US is seeking wider support for the initiative. Shipowners and operators are already affected by the sanctions. Its critical for many operators to be able to call US ports continuously, making them shy away from Iranian business. In turn, this opens up an emerging and growing market serving Iran and, for example, China for owners and operators that never call at US ports. Other US sanctions against Russia and Turkey are expected to have less of an impact on the shipping industry. In the midst of the trade war, the advance estimate of US second quarter GDP growth came in high, at 4.1% (seasonally adjusted at annual rates), pushed up by personal consumption expenditure on goods, and even more on services. The final day for hearing comments on the proposed USD 200bn tariff list of imported Chinese goods is 5 September. Implementation of that list is likely to happen in October 2018. BIMCO is keeping a close eye on the developments of the trade war and its impact on shipping via regular updates. asia Emerging and developing economies share of global GDP is going up constantly. This is largely because of Asian economies such as those within the ASEAN-5 (Indonesia, Malaysia, Philippines, Thailand and Vietnam), which is projected to grow by 5.3% in 2018 and 2019. China and India, the largest of the Asian economies besides Japan, are expected to grow at even faster rates. Japan is set to return to a low GDP growth level for 2018 and 2019, at around 1%, down from 1.7% in 2017. A slow start to the year has pushed down growth because of weak private consumption and investments. A reversal of these trends and stronger exports are expected to drive the Japanese economy faster in the second half of the year. South Korea experienced a relatively poor second quarter, as it grew only 0.7% during Q1 (2.9% annualised). Exports, accounting for 43% of GDP, grew by only 0.8% after a jump of 4.4% in Q1. Investments in capital goods and private consumption fell during the second quarter. As a positive side-effect of the trade war, some of the Asian manufacturing hubs outside China may see their share of extra-Asian exports increase at a faster rate than before. Many semi-finished manufacturing goods are transported around Asia in containers, before being exported overseas. Currently, 25% of global container shipping volume is intra-Asia. China continues to drive a lot of shipping demand as it develops further. The Chinese economy is still growing quite strongly, but at a slower pace than before. To smooth the way to a lower growth level, the Peoples Bank of China has returned to easing monetary, as well as fiscal, policies in 2018. outlook The trade war is affecting large parts of the shipping industry now. Only crude oil was exempted in a last-minute adjustment by the Chinese authorities. Once pulled off the list, BIMCO does not expect it back. Up until now, the impact has mostly been massive uncertainty, added to an increasingly complicated trade environment. But as new tariff regimes are put into force, during the recent and coming months transport volumes on a larger scale will be involved. Dry bulk and container shipping is at the centre of this. Monthly industrial production Growth rate Most attention is on the US-China trade war, but its a global war impacting on many other nations in different ways and one that also affects the global shipping industry. Domestic steel markets are now being protected from imports. Trading partners are having difficulties figuring out how to continue doing business. One of the effects of the trade war may be longer sailing distances EU-28 USA Japan China India Brazil for some commodities, while others will experience shorter sailing Source: BIMCO, Eurostat, NBS China, METI, Federal Reserve System, SIDRA, MOSPI distances. Overall, however, more expensive goods in general is likely to lead to a decreased demand for them, so shipped volumes could drop. The trade war also presents a risk of slower global economic growth, which will also hurt Photo: monsitj / iStock and Danny Cornelissen at www.portpictures.nl the shipping business. Dry bulk shipping An improving market, even as iron ore imports slip and the fleet grows faster Demand Freight rates have recovered a lot in 2018, but it is not strong across the board. After a steady decline since April, earnings for handysize ships slipped back into lossmaking territory on the very last day of July and rates have kept sliding in August. In sharp contrast, the capesizes have turned around a fairly weak start to the year, and are now at USD 16,019 per day on a year-to-date average per 10 August. Disregarding the short spike in December 2017, capesize earnings are managing to stay at a high level not seen since March and November 2014. In 2012, US coal exports were generating more tonnes miles than Chinese coal imports. While US exports have rebounded since Q3-2016, current tonnes-miles demand remains below previous highs. The usual mega driver, Chinese imports of iron ore, is disappointing this year. It started at the second-highest imports level on record in January, only to deliver fairly steady but a bit lower volumes from there onwards, compared to last year. Total imported iron ore volumes are Dry bulk down by 0.8% in the first seven months from last year. The slowdown has been going on for more than demolition a year now, with H2-2017 volumes only 0.96% higher than H2-2016. One of the drivers in the market during the first half of the year has been US coal exports, which were up by 31% in the first six months, peaking at 10 million tonnes in April. In early August, international coal prices started to weaken, but remain at a high enough level for US exports of thermal and coking coal to be Dry bulk earnings attractive for buyers especially in the Far East. BIMCO 2014-2018 36,000 36,000 expects this to remain a driver, unless coal prices drop to a 34,000 34,000 32,000 32,000 level that price out US coal for Asian buyers. activity In recent years, Chinese steel mills have delivered an unchanged output, but the switch away from domestically mined iron ore caused imports to keep growing. This year, Chinas steel production is at a record high level, as more efficient mills are opening. High production is also coming on the China grows crude steel production more than iron ore imports monthly year-on-year growth rates, 2016-2018 back of strong steel-producing margins. Many of these mills are 25% 25% electric arc furnaces (EAF), which make steel out of scrap iron. 20% 20% China has always preferred blast furnace (BF) production to EAF, 15% 15% but EAF output has rapidly increased recently and now affects 10% 10% shipping. This results in more steel produced without more iron ore 5% 5% and coking coal needed in the process. If that is a sign of whats to come, Chinese iron ore imports could begin to drop faster than we have seen so far in 2018. Chinas availability of scrap steel is forecast to double from 2015, to reach 300 million tonnes by 2030 (source: World Steel Association). Note that China may still be cutting absolute steel-production capacity, but it is overcapacity and substandard capacity they are cutting not production output. -5% Crude steel production Log. (Crude steel production) Total iron ore imports Log. (Total iron ore imports) Source: BIMCO, World Steel Association, Clarksons Supply Monthly year-on-year growth data for the dry bulk fleet shows that the slowing expansion has bottomed out. Since the end of March, the fleet has grown by an average of 2.2% compared with the same month last year. The change in trend comes on the back of stablising capesize fleet growth, and the return of a growing panamax fleet. The latter is mainly a result of the sudden and almost complete end to demolition activity involving the 65,000-99,999 DWT workhorses of the fleet. Only 8% (214,000 DWT) of total demolished capacity in 2018 were panamaxes, down from 24% in the past four years. The usual mega driver, Chinese imports of iron ore, is disappointing this year Across the board, demolition of dry bulk ships has slowed to a trickle: only 2.6m DWT has been demolished. This compares with 14.7m DWT in 2017 and 29.5m DWT in 2016. Its a crystal-clear reflection of higher freight rates that now stop owners from scrapping ships. The halt in demolition activity also means that we need to revise upwards our fleet-growth estimate for 2018. This narrows the improvement of the fundamental balance. Where the former is down to human nature in the shipping market (not handling the supply side with care), the latter relates somewhat to the trade war, the drought in Europe and Australia limiting grain exports, and China growing its iron ore imports more slowly than forecast. The fleet will now grow by 2.7% if our revised demolition estimate of just 5m DWT is realised. Our previous dry bulk report was titled No more room for newbuilds. Three months have passed since then and 5.8m DWT has been ordered during that time; 14 of 24 ships were panamax and six were capesizes. BIMCO has long held the view that demand growth is better for the larger ship sizes compared with the smaller ship sizes, but if overcapacity reigns that upside will never materialise. 7% Growth rate Looking into 2019, a sensitivity analysis shows that a reduction of demolition in 2019 to 5m DWT from 9m DWT (estimated) currently will lift the fleet growth to 2.3%, which is also above our long-term estimate of demand growth. 7% Total eet growth Source: BIMCO, Clarksons outlook When profits finally arrive, everyone breathes a sigh of relief. Several years of very bad markets have come to an end, but how do we retain the profitable freight rates? We all know the answer make sure fleet growth does not exceed demand growth. Source: BIMCO estimates on Clarksons raw data A is actual. F is forecast. E is estimate which will change if new orders are placed. The supply growth for 2018-2020 contains existing orders only and is estimated under the assumptions that the scheduled deliveries fall short by 10% due to various reasons and 35% of the remaining vessels on order are delayed/postponed. The trade war has already taken many dry bulk commodities hostage. More tariffs were due to come into force on 23 August, as additional US dry bulk products get tariffed by China whereas no new Chinese dry bulk products have been hit by new US tariffs. The amount of US dry bulk commodities included in this round is much higher than originally proposed, as a last-minute removal of crude oil from the list was swapped for more dry bulk commodities. What comes next? More dry bulk commodites are being tariffed by both parties in the trade war. Full disclosure of this is found in a separate and updated BiMCo overview of the trade war and its impact on shipping. As we close in on the fourth quarter, and the US soya bean export season, the real effects of one of the main tariffed commodities will be exposed. What we know right now is that Brazilian exports have been higher than last year, but so far they remain nowhere near a level where they can fully substitute for US exports to China. Other negatives coming out of the trade-restrictive measures are the protective actions taken by EU to shield its steel market and industry against steel that would have been imported by the US, but now seeks a new buyer. India is rumoured to be following suit. As demand for transportation of dry bulk commodities increases throughout the year, BIMCO expects the recovery of freight rates to continue slowly but steadily. Expect higher volumes for coal, iron ore and wheat to dominate the market in the second half of the year. Connect with BiMCo Facebook Twitter Growth rate p.a. 2014A-2020E Million DWT In 2018, demand has outpaced fleet growth and year-to-date (10 August) panamax average earnings stand at USD 11,181 per day, up from USD 8,654 (+29%) per day. You could argue that owners should have kept up the pace of demolition, making an extra USD 1,000-2,000 per day on the 11,000+ ships in the fleet. But as the industry is so fragmented, with thousands of owners globally, every ship is important to its owner. As you cant scrap one-quarter of a ship, the industry relies on the larger owners to do the right thing to balance the markets by means of demolition. In 2017, 121 shipowners scrapped 219 ships. In 2018, a mere 34 shipowners sold 37 ships for scrapping the lowest level since 2007. Dry bulk ship eet growth Linkedin YouTube Photo: Lukasz Z / Shutterstock Tanker shipping A record poor tanker market with a growing fleet is prolonging the crisis Demand BIMCO expected the crude oil tanker market to continue its struggle from 2017, but the magnitude of it has been staggering, as evidenced by the worst freight rates on record. This is particularly true for crude oil tankers, but the oil product tankers are now set for a loss-making year too. By 24 August, we note that year-to-date average earnings for the Very Large Crude Carriers (VLCC), Suezmax and Aframax crude oil tankers stand at USD 6,797, USD 11,337 and USD 10,438 per day respectively. peter Sand Chief Shipping analyst at BiMCo For LR2 (AG-Japan), LR1 (AG-Japan), MR and handysize oil product tankers, year-to-date average earnings stand at USD 8,961, USD 6,965, USD 8,741 and USD 5,239 per day respectively. All are a long way below profitable levels. During March and April, quotes 15,000 on 3- and 5-year T/Cs for a VLCC 10,000 5,000 dropped, from USD 27,500/29,500 0 per day to USD 24,000/25,500 per day. That followed the trend LR2 LR1 MR of the 1-year T/C rate that had Source: BIMCO, Clarksons been gradually sliding from USD 27,750 in November 2017 to USD Crude oil tanker 19,000 per day in June 2018. For earnings an industry-average VLCC, BIMCO estimates that USD 23,700 per day is needed to cover operating and capital expenditures. It remains a fact, however, that global oil demand is growing constantly, and so is global tanker demand 2015-2018 USD per day Noting that liquidity in the time charter (T/C) market is limited, it is still striking that the T/C market has been upside-down for more than a year now. Normally, short-term T/C rates (6-12 months) are higher than long-term ones (3-5 years). In depressed markets, its the other way around. 20,000 15,000 10,000 5,000 0 Growing Chinese crude oil imports (up 5.8% during the first half of 2018) improved crude oil tanker demand, but obviously not enough, as other elements are pulling the market in the opposing direction. It remains a fact, however, that global oil demand is growing constantly, and so is global tanker demand. Fortunately, the introduction of a tariff on 10 million tonnes of crude oil exports from the US to China was avoided at the very last minute. If China decides to source its import demand for sweet crude by going to West Africa, shorter sailing distances will hurt earnings. BIMCO does not expect crude oil to reenter the trade war after it has been removed. But a combined 2 million tonnes of refined oil products became a part of it in early August, when an exchange of already proposed tariffs affected various goods worth USD 16bn on both sides. One of the more spectacular trades seen recently has been a couple of VLCCs shipping oil products from the Far East into Europe on their maiden voyage quite hurtful for oil product tankers, but a sure sign of the horrible crude oil tanker markets. Supply The continued severity of the market conditions has made owners dig deep into the oversupply of capacity. BIMCO now expects 19m DWT of crude oil tanker capacity to be demolished up from 13m DWT in May and 2.5m DWT of oil product tanker capacity is to leave the fleet, up from 1.5m DWT in May. During the first six months of 2018, 13.1m DWT of crude oil tanker capacity has been demolished, a level equal to the total for the preceding 40 months. A change in that trend now seems to have developed, however, as only one VLCC was broken up in July, and little more that 1m DWT was taken away in total. BIMCO expects that there will be a cooling in demolition activity in the final six months of 2018, as the market is likely to deliver somewhat higher freight rates on the back of increased demand in the second half of the year. Crude oil tanker eet growth Growth rate (RH-axis) Source: BIMCO estimates on Clarksons raw data A is actual. F is forecast. E is estimate which will change if new orders are placed. The supply growth for 2018-2020 contains existing orders only and is estimated under the assumptions that the scheduled deliveries fall short by 10% due to various reasons and 30% of the remaining vessels on order are delayed/postponed. Although scrap steel prices are high right now, returning about USD 17m to a VLCC owner when scrapping, this isnt the deciding factor freight rates and earnings are. oil product tanker fleet growth The slowdown in demolition interest appeared among oil product tankers one month earlier, and no oil product tankers left the fleet in June. BIMCO expects to see the 2017 demolition total exceeded soon and that 2018 will reach a six-year-high level of oil product tanker demolitions, despite the pace of it slowing down recently. During the first seven months, 1.8m DWT of oil product tanker capacity has left the fleet. Fleet growth year to date has been muted by the massive demolition activity. The crude oil tanker fleet was 0.2% smaller by early August than it was at the start of the year. The oil product tanker fleet has grown 1.7% in the first seven months of 2018. Our fleet growth forecast for the full year of 2018 is at 0.8% for the crude oil sector and 2.4% for the oil products sector. After a surprisingly high number of new orders emerged during the challenging first half of the year, there were no new orders for crude oil tankers in June. Looking at BIMCOs delivery forecast, a halt in contracting is long overdue. It is already clear that the industry must keep demolition activity high well into 2019, to avoid a worsening of the fundamental balance. For oil product tankers, the supply outlook is better; moreover, the ordering of newbuilds in 2018 has been quite low at a level not offsetting a potential recovery in the market when demand improves. Figures from early August prove that the fleet growth has slowed considerable over the past year: crude oil tanker sector growing by 0.7% oil product tanker sector by 0.8%. BIMCO members can find easy-to-use graphics on fleet development for all sectors here. outlook Global rening A short-term rate recovery is not expected, as it is maintenance season for the global refining industry in September/October mostly the part of it located in the OECD countries (mainly the US, Europe, Japan and South Korea) and Russia as they repair and prepare the facilities for the winter specifications of the refined oil products. From an operator perspective, chartering in a ship with a scrubber installed onboard is a hedge against rising bunker fuel costs after 1 January 2020. From an owner perspective, chartering out a ship with a scrubber installed means a significant premium on the T/C rate, which, in turn, pays for the scrubber. Overall, global oil demand remains healthy. The International Energy Agency (IEA) expects growth of 1.4m barrels per day (bpd) in 2018 and 2019, down from 1.5m bpd in 2017. Asia will be driving two-thirds of the incremental volume growth, even though it only accounts for 27% of the total demand today. During the second half of 2018, BIMCO expects freight rates to go up from the very low levels seen up until now. Seasonal demand should support the market in Q3 and, especially, in Q4. For crude oil tankers to really enjoy solid earnings, however, patience is required, as overcapacity is currently significant. The fundamental balance could worsen in 2019 if demand growth does not pick up, as the fleet could grow by 2.5% unless extensive demolition activity continues. Photo: AvigatorPhotographer / iStock mb/d There is anecdotal evidence that there may be a significant premium on long-term time charters for oil tankers with a scrubber installed onboard, compared to similar ships without it. Two VLCC newbuildings fitted with scrubbers are being fixed at USD 35,000 per day for three years, with delivery in 2019. Rates for non-scrubber-fitted ships are being quoted at USD 24,000 per day. 84 Jan mb/d There is anecdotal evidence that there may be a significant premium on longterm time charters for oil tankers with a scrubber installed onboard, compared to similar ships without it 84 mb/d Crude throughput mb/d For steady and positive demand growth, you need to look east of Suez. Crude oil throughput in the eastern refineries is constantly positive and growing. If you look to the west of Suez (Atlantic Basin in graphics), it gets volatile and unstable. This reflects the ongoing multi-year shift that we are experiencing on a global scale, where oil demand growth is now dominated by Asia, whereas demand in the US and Europe is only growing slowly. Container shipping It is obviously very difficult to hold down fleet growth to improve the market Demand When judged by global volume, demand growth alone 3.8% for the first six months is not that bad. Its just that the nominal fleet grew by 3.9% during the same period, and the active fleet even more. The trend points towards lower demand growth this year, as global volume demand has fallen since April. It goes for all shipping sectors that tonnes-miles demand is measured by the volumes multiplied by the sailing distance. This gives a bit of insight into why container shipping is facing headwinds at the moment; 83% of the newbuilds delivered in 2018 are ships with a capacity of 10,000+ TEU. They were made for long sailing distances. This compares to 37% of the volume growth being short-distance, intraregional trades (for example, intra-Asia or intra-Europe). peter Sand Chief Shipping analyst at BiMCo The positive economic development in Europe is mirrored by imported volumes, this year in particular. Inbound volumes into Europe are up 4.1% (+646,000 TEU). But the problem is that imports are growing on secondary, middle-distance trades from North America, the Indian subcontinent and the Middle East, and South and Central America to other countries trades that are currently serviced mostly by ships below 10,000 TEU. As the trade war goes on, more containerised goods are getting involved Growth on the longest distance tradelane from the Far East, which accounts for half of all European imports and 10% of global volumes, is up by a meagre 1.3% (+99,000 TEU) in the first half of 2018. (datasource: CTS). The development was much better on the other significant long-distance trade from the Far East into North America, where imports were up by 214,000 TEU (7.1%). Interestingly, too, imports into South and Central America grew strongly in all overseas trades apart from North America. Double-digit growth rates, between 11% and 18%, were recorded from Asia, Europe, and the Indian subcontinent and Middle East. After four hectic months of chartering, in which 6-12 month time charter (T/C) rates reached a threeyear high in June, interest has cooled down. T/C rates for a 6,500 TEU ship have fallen from USD 19,000 per day on 22 June to USD 14,500 per day (-24%) on 10 August. Charter rates for smaller ship sizes have risen and fallen to almost the same extent. Supply The capacity of the fleet is growing too fast for the demand to cope with it. All three aspects of the supply side have pushed up the fleet growth in nominal as well as active terms. The third element is the roller-coaster ride of reductions and reactivations of the idle fleet. This has mainly been pushing the active supply growth up, resulting in falling freight rates as demand is growing at a lower pace. Starting the year at 417,000 TEU, the idle fleet dropped to 200,000 TEU by February, only to rebound strongly to 627,000 TEU by March. As per end of July, 341,000 TEU is idle. . The yards have delivered 947,000 TEU of newbuilt containership capacity, slightly above our expectations. What has been completely off our expectations has been the fact that only 36,833 TEU of capacity was demolished by early August. During Q2-2018, just five ships (9,608 TEU) were taken out. Its been 10 years since we last had such a low level of capacity removed. Only small and old ships have been broken up. In 2018, the average ship being demolished was 24 years old, with a capacity of 1,754 TEU. In 2017, the average ship was 21 years old and 2,807 TEU in size. Whereas the initial rounds of the trade war between the US and China were focused on steel, aluminium and soya beans, the more recent rounds (July and August) and those already being proposed for future implementation are much more focused on containerised goods. BIMCO estimates that tariffs imposed on 6 July affect 670,000 TEU (7 tonnes cargo per TEU), with an additional 270,000 TEU affected from 23 August. In total, 9% of US West Coast imports are now part of the speeding train towards a trade war. Moreover, the fleet is more and more a matter of two tiers, divided somewhere short of 10,000+ TEU. Most of the new capacity is above the threshold, whereas all of the demolition is below. The two are still connected, but they get further and further apart both in terms of deployment and earnings. In addition to that, we revise our demolition estimate downwards, from 250,000 TEU to just 80,000 TEU. This results in an estimated nominal fleet growth of 5.5% for 2018. Should demolition volumes only reach 40,000 TEU, the fleet would then grow by an estimated 5.7%. Sensitivity analysis remains as important as ever to understand how the movements in a market such as this affect the freight rates in the end. If you keep demand growth and idle fleet fixed, the fundamental balance will deteriorate if the fleet growth goes up from 5.5% to 5.7%. Newbuild deliveries for the remainder of the year are still biased toward the ultra large container ship (ULCS), but not as much as in the first seven months. The share of ULCS capacity comes down from 83% to 71% for the final five months. The ULCS will be delivered from yards in all three key shipyard nations: South Korea, China and Japan. outlook As the trade war goes on, more containerised goods are getting involved mostly on the transpacific trade lane, but also on the transatlantic routes as the EU and US are far from settling their disputes. BIMCO expected the fundamental balance to improve in 2018 and higher freight rates across the board as a result of the fleet growing slower than demand; now it seems as if its not going to happen. This is partly because of demand growing marginally less than expected, but mostly because of much faster fleet expansion. Having said that, a different distribution of demand growth away from the short intra-regional hauls towards the longer-distance trades would have meant a better match of newbuild ships and demand growth, and potentially better earnings. Currently, 2019 is on target for much more manageable fleet growth, that not even a very low level of demolition would be capable of putting off track, unless a sudden rush by shipowners towards the yards emerges. Contracting interest tends to come in waves, and its been low so far in 2018. While still at a solid level of 3.8%, global demand is growing more slowly than last year. In combination with a year-to-date fleet growth of 4.4%, a worsening of the fundamental market balance, resulting in lower freight rates, is inevitable. For the Europe-bound trade, CCFI is down by 4.6%, whereas the US West Coast index fell by 3.8%. On one of the fastest-growing sizeable trades in 2018 (+11.4%), going from the Far East to South and Central America, rates also fell but by a smaller margin: 1.9%. Capacity had surely been injected beforehand, anticipating a high volume growth. Facebook Linkedin YouTube Photo: jimmux / Shutterstock Looking at freight rates and considering both the spot-market rates and the long-term contractual rates (the China Containerized Freight Index, CCFI, does that) they are mostly under par compared to last year. Using the CCFI as a proxy for industry performance, the composite is down 4% on a year-to-date average compared with the same period last year.