AN INCREASING level of containership demolition and a slight growth in global trade has helped push the supply and demand equation closer towards equilibrium this year, according to new analysis of the market by Clarksons Research.

“Container trade growth appears to have improved in 2016 so far, having slowed to an estimated rate of just 2.2% in 2015 — the slowest pace of growth since 2009,” Clarksons said. “Whilst global economic risks clearly remain, total container volumes are estimated to reach 182m teu in full-year 2016, representing growth of 3.8%.”

That has been balanced by growing demolition levels and reduced deliveries, Clarksons added, which meant that supply growth was just 1.1% in the first half of this year.

“By the end of 2016, the containership fleet is expected to total 20.2m teu, representing growth of just 2.4% year on year, which would be the slowest pace on record, following a rate of 8.1% in 2015,” Clarksons said.

This would lead to a reversal of last year’s trend and could see containerised trade growth this year outpace expansion in the containership fleet.

“This will help to erode some of the overcapacity generated last year, although further significant changes to the balance will be needed before market conditions improve,” Clarksons said. “The freight market remains under significant pressure, and where improvements have been achieved, gains have been limited. Charter rates have languished at historically low levels in 2016 so far, and while supply side fundamentals remain positive for some parts of the market, a sustained and significant improvement in box trade growth will be needed for rates to increase.”

Clarksons said mainlane trades, which expanded just 0.6% in 2015, were projected to grow 3.2% to 53.1m teu this year as the Asia-Europe trade improved. After contracting by 3.1% in 2015 on the back of Russia sanctions, slow growth in European economies and readjustment of inventory levels, Asia-Europe trade picked up in the first half of the year and is expected to grow by 3.9% in the full year.

On the transpacific trade, peak volumes grew more slowly, but were still expected to reach 16.1m teu this year, an increase of 4%, Clarksons said.

Meanwhile, a strong US dollar relative to European currencies is forecast to boost headhaul traffic to the US across the Atlantic as well, with volumes expected to increase by 3.6% to 4m teu.

Elsewhere, on the non-mainlane trades, Clarksons expects volumes to grow by 4% to 128.6m teu, and said east-west trade, particularly between Asia and the Indian sub-continent, would be among the fastest growing.

On the north-south trades, however, the collapse in commodity prices hit import levels to producing countries last year, and this continued into 2016.

“Imports into both Latin America and sub-Saharan Africa appear to remain under pressure, although box exports from these two regions to the northern hemisphere are estimated to have at least exhibited fairly firm growth,” Clarksons said.

Recovering growth in Asia is expected to see intra-regional volumes accelerate by 4% this year as the high-volume intra-Asia trades pick up again following disruptions last year brought about by China’s economic turbulence.

“While China appears to be continuing its transition towards a more diverse economy and away from a focus on heavy industry, prospects for intra-Asian container trade remain positive,” Clarksons said.

“Developing Asian economies continue to hold growth potential, and the multi-location assembly of manufactured goods is expected to continue, particularly with developments in wage differentials across the region.”

However, as reported in Lloyd’s Loading List, container shipping industry analyst Drewry last month said it believed surging vessel demolitions this year will not be sufficient to bring balance to container markets.

The analyst said the opening of the new Panama Canal, a widening gap between ocean transport supply and demand, and the fear of continuing losses among charter owners were three “compelling” factors behind the current surge in boxship demolitions which are now forecast to total 450,000 teu of capacity this year. But, although a necessary step to help bridge the gap between supply and demand that has hurt freight rates in recent years, “ship demolitions will not be enough to bring the container sector back into balance unless owners also refrain from ordering many new vessels”, said Drewry.

The surge in demolitions started in 4Q 2015 and has continued this year, with some ships now being scrapped despite being less than 15 years old. “Containerships are normally depreciated over 25 years, so scrapping a 15-year-old vessel implies a write-off of nearly 40%,” said Drewry.

“Furthermore, the opening of the new Panama Canal in June has created a surplus of old Panamax ships of around 4,500 teu. This size and design of ship – previously one of the workhorses of the containership industry – has essentially been made redundant. More Panamax vessels will surely head for the scrapyards of South Asia, as their owners or charterers replace them by newer and more efficient 8,000 teu ships.”

However, even taking 450,000 teu of capacity out of the market this year will only account for some 2% of the current 20-million-teu-strong global fleet of containerships. “This will only make a dent into the over-capacity built during the 2010-15 period, which saw 4.5 million teu in capacity added to the industry globally at a time of slowing demand,” said the analyst.

This is an adapted version of an article originally published in Lloyd’s List: Improving outlook for container sector.