Container shipping lines have been managing capacity on the East-West trades quite well, but cascading the excess supply to the North-South lanes may not be the best way to protect their profitability, according to Drewry Maritime Research’s latest annual Container Market Annual Review and Forecast 2013/14.
The report said carriers have shown restraint in deploying tonnage on the main East-West trades despite the delivery of over 25 ultra-large container vessels (ULCVs)—or ships of at least 10,000 20-foot-equivalent units (TEUs)—so far this year.
As of October 1, Drewry estimates that head-haul capacity on the three main East-West routes has increased by only 2.3 percent year-on-year. “However, there is still a structural over-capacity, and Asia to North Europe spot rates have fallen in 33 of the 39 weeks so far this year,” it added.
The container lines have done right by focusing on reducing costs to achieve some profitability. The industry will save US$5.5 billion on fuel this year, said Drewry, as a result of lower market prices, network changes, slow steaming, use of more fuel-efficient ships, and bunkering in Russia.
“The importance of bunker savings was clearly demonstrated by Maersk Line in its surprisingly strong second-quarter financials this year,” noted Drewry.
Furthermore, some of the operators with more ULCVs in their fleets are now starting to reap the true benefits of their economies of scale, it continued.
The downside: the cascade of tonnage to the North-South trades—regarded as regions of promise by all operators—could prove detrimental.
Rates in the once-stellar Asia-East Coast South America trade have fallen 61 percent to $780 per TEU this year. In the Asia-Australia trade, they have plummeted 65 percent to an unsustainable $400 per TEU this year.
With global fleet growth forecast to be 7.4 percent next year, carries will need to limit capacity growth on the trade routes or risk ruining the trade lanes that they see as promising.
“We do not forecast annual global trade growth rising above 6 percent between now and 2017, and so carriers need to find another way of defending their profitability beyond the futile monthly GRI attempts,” Drewry advised.
“Pouring too much capacity into the system means that at some stage it will overflow and we would argue that this has already happened to some extent,” stated Neil Dekker, Drewry’s head of container research.
“Although 2013 will turn out to be an OK year for the industry and the main stakeholders should make a small profit, many carriers will still be in the red,” he added. “Liner companies can no longer treat the ULCVs as a secure passport to profitability unless they release the pressure elsewhere.”