Bad times cometh
Lines have failed to bring excess capacity in check. Credit: Dirk Ingo Franke
Ask any container shipping line about its New Year’s resolution and it has to be finding the path to stem financial losses.
After what was a sunny time in 2010, the latter half of 2011 saw the bad times flow back with much of the fault for this lying at the door of the lines themselves, and specifically their inability to keep the supply of new vessel capacity in tune with demand.
According to Janet Lewis, head of Asia Shipping Research for Macquarie Capital Securities, container lines will find it hard to maintain recent freight rate gains after the Chinese Lunar New Year because the industry hasn’t done enough to reduce excess capacity.
The liners have still not been taking out capacity at a rate needed to support further rate increases – or even ensure that they can maintain rates post-Lunar New Year, she says in the latest Macquarie Asia Shipping Pulse Report.
The idle containership fleet is identified as just under 4% of the total fleet but Ms Lewis states analysis conducted by Macquarie suggests that this has to be at a level of around 8% to trigger a meaningful rate recovery.
Unlike in 2009, a slowdown in newbuilding deliveries is not anticipated as part of a solution to the prevailing problems. “Carriers need to take delivery of the ultra large container ships they have ordered to reduce their costs on the Asia-Europe route, where the larger vessels offer significantly lower costs per teu,” explains Ms Lewis.
Equally, no solace is seen as a result of the new alliances recently formed. “If anything,” she says, “we believe the recent realignment of the industry into new alliances will forestall rather than promote capacity withdrawals.”
Similar noises are coming out of the Alphaliner camp. The view is held that:
- The rally in ocean freight rates since the beginning of the year will drop off after the Chinese New Year as capacity exceeds demand.
- Ocean freight rates and ship charter rates will remain weak through 2012 as demand growth slows in Europe and the US and growing available vessel capacity worsens the supply demand balance.
- The 2012 the container vessel fleet will grow by 8.3% resulting in an over-supply that could take idle ship capacity up to 1m teu by the end of the year – from a level of nearly 600,000 teu now.
- Europe Far East Container Traffic will slow to 1.5% this year from an estimated 2.8% in 2011.
Like Macquarie, Alphaliner conjurs a vision of protracted pain for container liner operators.
London-based Drewry Shipping Consultants on the other hand does see some glimmer of light at the end of the tunnel. Underlying this is a belief that an untenable rate war will, around second half 2012, force lines to slash capacity – i.e. move to idle around 8% of the world fleet.
“Once the pre-Chinese New Year rush recedes later this month spot rates will retreat back to December levels, unless carriers take action to remove surplus capacity,” said Martin Dixon, Research Manager of Drewry’s Container Freight Rate Insight.
And to cargo shippers he also offers the salutary thought. “Locking carriers into low freight rates today may hinder surety of supply in the future.”
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