Stronger trade and economic growth this year are buoying the outlook for container lines, although poor freight rates and higher costs are among the headwinds facing box carriers.

Jeremy Nixon, chief executive of the newly merged Japanese container line Ocean Network Express (ONE), said, “We can say the economic fundamentals outlook looks very positive.”

Demand “is reasonably good but we shouldn’t get carried away,” Nixon added, with the possibility of political shocks including the threat of trade wars and sanctions. He also saw a recovery in Latin American trades.

Nixon also noted that despite the positive sentiment, many carriers reporting losses in the first quarter of this year, “We’re in loss-making territory with further pressure to come.”

Container trade volumes grew by a better-than-expected 5.3 percent in the first three months of this year, up from 4.7 percent in 2017 and 3.9 percent in 2016. This followed a slight acceleration to 3.9 percent in global economic growth in the first quarter, from 3.8 percent last year, according to the International Monetary Fund. In Asia, containerised exports increased by 5.8 percent – or 1.2 million TEU – while imports were also higher.

Asia, seen as the powerhouse of global trade, accounted for 55 percent of global container exports during the first three months while intra-Asia is the biggest container market.

Total intra-Asia container volumes are set to rise by around 5 percent a year from around 31 million TEU this year, climbing to approximately 34 million in 2020, according to IHS Markit forecasts.

Hong Kong’s Gold Star Line is seeing the intra-Asia market grow by around 6 percent a year as factories move out of China to other south-east Asian countries and Asia trades within itself.

In other markets, “it seems growth in volumes is pretty strong on all east-west trades,” said Michael Fitzgerald, group deputy chief financial officer at Orient Overseas Container Line (OOCL).

“There is strong growth on the transpacific and Asia-Europe is also doing very well. Also, volumes on some, not all, intra-Asia and north-south trades (are doing well),” Fitzgerald said at a shipping conference in Shanghai last week.

“The sales guys still feel there is plenty of cargo coming our way. The peak season looks quite promising,” he added.

“Global container trade is growing at a very decent pace after the deceleration of the first half of the decade,” ship broker Banchero Costa said in a report on Friday.

“The container shipping industry is surely in a much better shape today than it was for most of the last 10 years: healthy demand, slower fleet growth, a very long round of mergers and acquisitions, bankruptcies and alliances brought more concentration that helped rates to move higher and is driving liner companies back in the black,” Banchero Costa said.

However, warning of storm clouds ahead, the report added, “A number of threats are looming as the industry seems to be moving towards a more peaceful period, freight and time charter rates remain at historically low levels whilst rising oil prices are driving bunker prices (upwards).”

That was reflected in a series of first-quarter losses.

On the transpacific, Danny Hoffmann, Gold Star Line managing director, said, “Service contract rates are higher this year. But at the end of the day, rates are not as high as we expected them to be.”

One beneficial cargo owner (BCO) who signed nearly US$100 million of freight contracts with box lines in April told Forward with Toll that he was surprised contracted rates were lower this year.

The BCO, who mainly ships cargo across the Pacific said the lower rates did not bode well especially as competition among lines was intense despite the raft of mergers and consolidation through more alliances that had taken place.

“On the container side, lines had a better 2017 than 2016, but has there been a turnaround in the market? I don’t know,” said Zhang Ting, director at Société Générale in Hong Kong.

OOCL’s Fitzgerald was more upbeat, “Overall for the year, maybe some people will make a bit of money; maybe some people lose a bit. 2018 is not going to be brilliant – it’s going to be OK.”