Bleak future as car carriers face more challenges

The car carrier sub-sector of the shipping industry has seen an increase in scrapping and almost no new orders in 2016 as vessel owners are trying to combat a decline in global seaborne car trade.

Given the strong link between economic growth, consumer demand and car sales, the car carrier sub-sector has been highly exposed to sluggish world economic performance in recent years, and global seaborne car trade has still not returned to its 2008 peak of 21.3 million cars, with average annual growth of just 1.4 per cent in 2013 to 2015.

Latest statistics from Clarksons Research (an international shipping consultancy firm) said 2016 saw further pressure on seaborne volumes, with car trade projected to have dropped four per cent to 19.8 million cars.

According to the report, the key driver of this fall has been considerably lower imports into developing economies following the commodity price downturn. Car sales in these countries have dropped sharply, and seaborne car imports into the Middle East, Africa and South America are set to drop by more than 10 per cent this year.

While imports into North America and Europe, still the two largest markets for imported vehicles, have grown moderately (by two per cent and four per cent respectively), this has not been enough to offset declines elsewhere. Other factors have also dented volumes, with expansion of car output closer to demand centres leading to a disconnect between global car sales, which have continued to expand, and seaborne trade volumes.

Largely, as a result of the downturn in demand, car carrier market conditions have deteriorated further, according to Clarksons Research. Most car carriers still operate under long-term agreements, but guideline charter rates have fallen back to subdued levels, with the one year rate for a 6,500 ceu Pure Car Truck Carrier (PCTC) falling to $16,000 per day in recent weeks, down 30 per cent from the start of the year.

Besides, it revealed that vessel idling has risen, utilisation of active capacity is under pressure, and waiting time between fixtures has increased, whilst a trend towards shorter-term and spot fixtures has also been apparent.

“In response to these pressures, owners have stepped up supply-side action. Scrapping has increased, and is projected to reach 0.2 million car equivalent capacity this year, over four times the 2015 level and the highest since 2009, with fleet capacity projected to have declined by 0.3% in full year 2016. Meanwhile, only two ships have been ordered in 2016, after 42 contracts were placed in 2015.

Yet the road ahead still seems far from clear for the car carrier sector, with demand seeming unlikely to shift up a few gears in the short-term, according to Clarksons Research.

Nigeria presently does not have any vehicle shipping line, but only few consignments (vehicles) are berthing at the ports due to some unfavorable government policies such as the Auto Policy and high tariff, among others.

Among the few vehicle consignments that arrived the Lagos Ports recently was that of SIFAX Group, one-stop-shop vehicle importation service, which came with 1,536 vehicles.