Surviving 2010 not a panacea for 2011
Will liner operators learn from the mistakes of the past?
What a wonderful year 2010 was: the container shipping industry has survived and even those on the edge of oblivion managed to get pulled back.
North European imports for all trades grew nearly 13%. North American imports surged by 17% and exports also remained healthy.
Record revenues and profits abound among many of the larger carriers and terminal operators and even those that barely survived managed to scrape some profits together. So now, more and more, we hear: What recession?
Having made as many cost savings as possible, slow steaming and improving productivity at terminals, there is little room left for additional savings. This means capacity management as a tool to maintaining and increasing revenue is the only thing left in the toolbox. And here is the problem.
Carriers began to cut back capacity in early Q4 2010, but some broke ranks. Those at the marginal end of the market share table did not matter much, but when at least one of the top five decided that all new tonnage must be in service and be as full as possible, the impact on freight rates was quick to follow.
According to Alphaliner, capacity increased by 14% in 2010, and over 750,000 teu of capacity remains on the orderbook, and new orders continuing to be added. Freight rates headed south again as supply and demand had a hiccup.
Excess capacity will remain an issue for at least another two years, if not longer. Shippers are reporting higher costs due to transportation which leads to lower profitability; carriers try to increase freight rates in a slack season, including GRIs and peak season surcharges, neither of which appear to be enforceable.
Will we see sharp increases in freight rates in 2011? Probably not as the market share competition heats up. We have already seen markers put down by some of the players. This could lead to some insolvencies and mergers and acquisitions, arguably needed in the industry.
Can companies on the margins of profitability afford a year of weak freight rates? Very unlikely. Will all survive? That is the key question on the table for this year.
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