2018 – will the intermodal industry fare better or worse than 2017?

Jan 24 2018

For many of us 2017 was the year of #metoo, fake news, incorrect winners being announced at the Oscars, Ed Sheeran’s songs everywhere, “negative press” and then, to cheer us up right at the end, Harry Windsor and Meghan Markle. In short, a year of ups and downs. For those in intermodal logistics the year was similarly mixed – some causes for concern, some encouraging signs of sustained recovery and the promise of more progress in 2018

Assessing the Numbers

On a macro level, economic growth in 2017 was surprisingly strong. Despite its controversial president, the US economy grew at 3% in the third quarter, its fastest rate for three years. China grew at 6.9% over the year – almost exactly as expected. The IMF is projecting that global trade will be 4.2% up in 2017, up from 2.4% in 2016.

The industry-specific numbers look similarly positive. BIMCO, the international shipping association representing shipowners, said that 2017 was better for container shipping as freight rates went up, volatility declined and the idle fleet was reactivating. Demand growth rate is heading for +5% and last September the ordering drought ended with 20 new orders for 22,000 TEU ships. Drewry is similarly upbeat, estimating that tonne-mile demand of chemical commodities will grow at 3.8% in 2017 and the global chemical trade at 3.3%.

The China Factor

Drewry also expect dry bulk shipping rates to recover in 2018, driven by China – one of the key countries shaping 2017 and likely to be a key factor in 2018. Growing grain consumption in China and Africa will boost grain trade and continued investment by the Chinese government in its One Belt One Road initiative (the subject of an Intermodal Eye blog in June last year) will boost intermodal logistics at all levels of the supply chain.

Total announced acquisitions by Chinese groups of logistics companies more than doubled to $32.2bn in the first 11 months of 2017, according to figures from Grisons Peak, a London based investment bank. Having bought ports, China is now following that up with a strategy to match logistics to ports. Alibaba Group, one of the world’s biggest e-commerce companies, announced in September that it will invest $15bn over five years to create what its chief executive called “the most efficient logistics network in China and around the world”. That’s certainly worth keeping an eye on in 2018. Maybe the chief executive will be at Transport Logistic China 2016 in Shanghai this May?

Welcome Unifications

We will be there, as will a tank container village organised by the newly unified ITCO and @TCO, which announced their completed merger this month. This was great news to start 2018 with and we hope that the unified organisation is able to enhance the already impressive work it is doing in acting as the unified voice of the industry and ensuring high standards are maintained. In particular, we are looking forward to the 2018 Tank Container Report, which we hope will build on from the largely positive story told in the 2017 version, covered in our August Intermodal Eye Blog.

The redrawn ocean carrier alliances have also proven largely positive, with shippers still having a decent range of choices. The alliances themselves have helped carriers to control costs and add services. After the Hanjin bankruptcy, this has been a welcome period of stability. Further consolidation could be a trend to look out of in 2018.

Policy Concerns

So, what should we be concerned about in 2018? In a word, politicians. In May last year we questioned for how long Asia could keep on propping up the container industry? While the majority of analysts expect growth in China to keep boosting global trade, others believe that a shift in the focus of government to boosting services and managing down debt could see its growth stutter. In the US, it is just possible that Trump means it when he says that NAFTA could be terminated if the renegotiation doesn’t go the way he wants it to. Tearing up NAFTA would disrupt many supply chains in the region and have a knock-on effect elsewhere. On the same note, while growth in Europe remains encouraging, the date of Brexit is getting closer but little has yet been revealed about the shape of the final trade deal. Overall, politicians would be wise to bear in mind the guiding principle for doctors: “first, do no harm”.

In this context, businesses that are prepared to innovate will still find ways to grow. Digitalisation is a trend that is not going to go away – the ability to harness data and analyse it to discover new opportunities will continue to set the leading businesses apart from the rest. Growth could also come from the huge investments about to come from Alibaba and Amazon and should see supply chain businesses through any possible bumps in the road in 2018 and beyond.