Morgan Stanley says container shipping trade growth in 2011 is now expected to be weaker than projected earlier in the year.
Overall, Morgan Stanley now anticipates global demand rising by between 5% and 7% this year and next, having previously predicted an increase of 6% -8% for 2011 and 7%-9% for 2012. The downgrade reflects lower gross domestic product forecasts and follows similar forecast adjustments by other analysts.
However, a slide back to 2008 conditions for the global economy when trade finance seized up is not thought to be likely.
In its latest monthly commentary, Morgan Stanley admits it had underestimated the extent to which freight rates could decline before a supply reaction took place.
The investment bank said it had mistakenly believed in May that the industry would trim supply once it moved into the red, “but in reality, individual operators will not rationalise capacity until freight rates drop below variable cash costs”.
But with rates now at what Morgan Stanley describes as “cash burn levels” as demand weakens, there could be a rapid return to capacity management, with ships being placed into lay-up once more. That, in turn, would help ocean carriers obtain mid-year rate increases and peak season surcharges.
“We believe that we are now at the inflection point,” the report states.
“Early indications are that proposed Asia-Europe rate hikes for August are being partially implemented, while further hikes for September are likely.”