Home » Breaking News, Maritime » Drewry: Overcapacity-related losses for ocean carriers in 2011

Despite a global demand forecast of 7 percent, ocean carriers will still lose money in 2011 due to a structural overcapacity across the core east-west trade lanes, Drewry Shipping Consultant’s latest quarterly Container Forecaster said. 

The London-based global maritime research company said container shipping lines will not cover their cost of capital in 2011 because of an excess of capacity on key routes, as well as poor discipline from carriers. However, it still sees decent volumes in intra-Asia and on emerging trades with Latin America.

“These are important times for carrier/shipper rate negotiations and the assumption now is clearly that the leading carriers are intent on protecting market share, rather than maintaining profitability,” Drewry said. “The resultant erosion of rates means that overcapacity remains a huge concern for carriers and a factor of instability for shippers as well as companies which finance or supply the carriers.”

A weaker-than-anticipated peak season has caused headhaul Asia to Europe and particularly transpacific volumes to falter, the company said. With load factors of only 80 percent to 85 percent, carriers have failed to push through their peak season surcharges, revealing the severe overcapacity in these core east-west trades.

Though some smaller players have exited the transpacific trade and even with operators’ plan to pull capacity from the trade this winter, headhaul spot freight rates will remain at unprofitable levels for ocean carriers, said Drewry.

“Perhaps it is ‘relatively’ easy for the biggest players to sit back and believe that the smaller carriers will go bankrupt this time round or will retrench to their regional markets and the industry will re-adjust itself. But a great deal of pain will be experienced even if this process does take place,” it added.

It predicted that operators will lose significant money in 2012 unless the fundamental trade supply/demand dynamics are pulled into equilibrium. “Vessel lay ups, which will be unwelcome news for independent shipowners, would be an obvious answer, but the amount is still minimal at the moment and it seems unlikely to reach the levels previously experienced in 2009/10.”

The company sees no major improvement in the global supply/demand balance for the next five years. The two million TEUs that have been ordered since June last year—of which 80 percent are for ships of at least 8,000 TEUs—have already done the damage, it added. “Effective cascading is now becoming a problem for carriers as they struggle to deploy ships into smaller trades without inflicting damage.”

Neil Dekker of Drewry stated: “Herein lies the essential battle within the industry that will probably never go away. The biggest ocean carriers seek the economies of scale from ever larger super post-Panamax ships, but in doing so, the industry runs the severe risk of introducing too much capacity at the same time and ruining the already fragile supply/demand balance.”

The boom and bust cycle is now an annual occurrence, rather than something that happens every four to five years, said Dekker. Three factors will determine how the industry will develop in the next five to 10 years, he said: Carrier behavior and commercial strategies, growth of the 10,000-plus TEU fleet, and waning consumption in theU.S. and Europe with the possible reemergence of near-sourcing.

 

Photo by Metro Centric 

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