Brexit could push back container shipping recovery to 2017

Although the UK only accounts for 5million TEU of the global container trade of 185million TEU, the vote to leave the EU could have an impact on the much wider European market as a whole.

The Asia–Europe trade is the largest container shipping route and the fall off in this trade from the latter half of 2015 has had significant negative impact on boxshipping as a whole.

MSI believes that the fall in volumes seen on the Asia–Europe trade was largely due to destocking of inventories, which reflected the fall in the value of the euro.

CTS data for the first four months of 2016 showed a return to growth on the Asia – Europe trade with a 2.7% increase in volumes.

However, UK’s Brexit vote has not only hit the value of Sterling but also the euro.

“Prior to the Brexit vote, we had believed that the stabilisation of the euro would lead to significant inventory restocking in 2016, which in turn would push up Asia-Europe westbound trade growth to over 7% year-on-year in the second half of 2016,” said James Frew a senior analyst with MSI.

“This rapid Asia-Europe trade growth, and its knock-on impact on intra-Asian cargoes, is integral to our projections of the rapid elimination of idle capacity – or at least its reduction to below 500,000 TEU which is the level at which we believe some pricing power shifts back to the owners.”

However, a further weakening of the Euro would push back this expected improvement of the market until 2017 with overcapacity remaining high.

In addition to a weaker Euro hitting the market, Brexit has also hit sentiment raising fears of a European or global recession.

An earlier report by analyst Alphaliner noted that “The risk of an economic slowdown in Europe could have a bigger impact on the containership sector, and a corresponding fall in global container trade volumes would only worsen the current supply- demand gap further. Based on Alphaliner’s latest forecasts, containership supply net growth will reach 3.6% this year, while global container throughput is expected to grow by only 1.3%.”



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