Far from full sail for major container cargo liners, but far better than 2016.
That’s the upside view for 2017 from some global transportation analysts and insiders. But while others see the year ahead being only marginally better than the year gone by, investors – if not analysts – are betting on continued growth in transpacific container cargo handling through B.C. and Pacific Northwest ports.
However, that growth will depend on much going right in the world economy and in trade between Asia and North America.
According to HSBC Bank Canada’s annual Global Trade Forecast, the value of global goods exports is expected to expand 3% in 2017 and then 6% annually to 2030.
But that’s contingent upon governments refraining from “introducing new impediments to trade.” And that, in the new Donald Trump trade era, is a long shot at best.
In its Container Traffic Forecast Study 2016 released last August, Ocean Shipping Consultants (OSC) projected annual container cargo growth of 4.8% for North America’s Pacific Gateway region to 2025.
The Port of Vancouver (PoV), according to the report, took a 37.8% share of the Pacific Northwest’s 8.07 million TEU (20-foot container) total in 2015. That share is up from 31.5% in 2011. The OSC report noted that PoV and the Port of Prince Rupert enjoy numerous marketplace advantages, including good terminal productivity and relatively low intermodal and rail costs.
But, it added, “there is already a pressing need for container terminal investment if further potential demand is not to be missed.”
The OSC study also conceded that the “Chinese economy is considerably more uncertain than was noted in earlier forecasts.”
The Port of Vancouver, it said, remains a highly competitive option for import and export container cargo and projected that its terminals would be handling more than 4.8 million TEUs annually by 2025 compared with the three million handled in 2015.
Meanwhile, Prince Rupert, one of North America’s fastest-growing container ports, has increased its share of Pacific Northwest cargo to around 10% since it started handling containers in 2007.
The B.C. container ports’ strength was underscored in late 2016 when Maersk Line, the world’s largest container shipping carrier, added new transpacific services to Prince Rupert and Vancouver to meet growing customer demand and what Maersk Canada president Jack Mahoney told Business in Vancouver are their cost-competitive options for reaching Canadian and American markets. Much of that competitive edge, he said, is driven by efficient port operations and Canadian rail service.
While Mahoney said Maersk’s expectations are for year-on-year growth in its container business, it will be “moderate” growth. “We don’t have the expectation that it will be something dramatic.”
In its 2016 third-quarter financial filing, Maersk Group (CO:MAERSK-B) cited “challenging market conditions” among reasons for Maersk Line’s third-quarter loss of US$116 million compared with a profit of US$264 million in 2015’s third quarter.
But Mahoney pointed to 2016’s relatively strong finish as reason for 2017 optimism.
Jones Lang LaSalle’s chief strategist for ports, airports and global infrastructure echoed that cautious optimism. Walter Kemmsies said things are looking better for Europe and the rest of a global economy that is no longer relying on the United States as its main driver.
But he said the change in American leadership, while initially sparking late-2016 stock market exuberance, could slow trade if it focuses on closing America’s massive trade deficit, especially with China. That could reduce offshore sourcing of goods.
Kemmsies also cautioned that the expanded Panama Canal, which opened its new locks on June 26, 2016, could increase incentive for major ocean carriers to divert larger container ships from West Coast North America to increasingly competitive container ports in the Gulf of Mexico and along the American eastern seaboard.
He noted, however, that B.C.’s West Coast container ports continue to be extremely efficient and cost-competitive.
A low Canadian dollar compared with its U.S. counterpart is part of that competitive advantage. Another is the reliable container service B.C. provides to the American heartland, especially its terminal-to-rail links.
“Canadian National [TSX:CNR] … that service they run from [Prince Rupert to Chicago] is like a Swiss watch,” Kemmsies said. “I think the Swiss set their watches to that service.”
As BIV reported in December, major investors and players in the global container terminal business are betting on a bright future for B.C. container ports. Dubai-based DP World, which operates 77 marine and inland terminals in 40 countries, announced a partnership with Caisse de dépôt et placement du Québec, Canada’s second-largest pension fund manager, that will establish a $5 billion fund to invest in container ports around the world.
DP World’s Fairview terminal in Prince Rupert and Centerm terminals in Vancouver will be the fund’s first beneficiaries.
PoV is also awaiting results of a federal environmental review of its proposed $2 billion Terminal 2 expansion at Deltaport.
The short list of potential operators for the terminal includes Abu Dhabi Terminals, Grup TCB/Mitsubishi Corp. consortium, Ports America, PSA International and Terminal Link/CMHI consortium.
But the world’s container shipping carriers are a long way from being fully financially afloat. The late-August 2016 corporate collapse of Hanjin Shipping Co., the world’s seventh-largest container shipping line, illustrated the shaky financial state of a sector grappling with too many ships chasing too few containers.
In its October Container Forecaster Drewry, a U.K.-based shipping consultancy, projected growth on the Asia to North America trade route of 2.9% in 2016 and 2.7% in 2017.
Neil Dekker, Drewry’s director of container research, noted that while the company sees an end to the destructive 2015-16 carrier rate war, there remain “doubts and concerns over any genuine or significant improvement in global demand levels.”
In a December update, Drewry said that, while prospects are improving for ocean carriers, red flags remain, including an overall caution based on the fact that “carriers have a self-sabotaging streak that in the past has shortened booms and lengthened busts.”
Dekker added that a critical and largely under-reported issue facing terminals and the rest of the containerized cargo supply chain is the infrastructure required at many ports “to handle the ever-increasing sizes of ships … and the pressure that puts on the port, its intermodal network and hinterland at certain times.”
“Carriers and ports,” Dekker wrote in an email, “are not talking together to communicate over big-picture developments such as investing in big ships.”
