Home » Breaking News, Maritime » Fitch: Rational pricing key to shipping’s full recovery by 2014

The world container shipping industry is on the right course by shifting its focus on more rational pricing, but it will not see a full recovery until two years from now, said Fitch Ratings.

The ratings agency said CMA CGM’s results for the first quarter of 2012—a net loss of US$248 million that is nonetheless considered one of the best for the period—indicate that the world’s largest container shipping companies are beginning to reap the benefit of a more rational approach to pricing.

But the French box ship’s performance also illustrates how far the industry has to go before a full return to health, which Fitch Ratings thinks is unlikely before 2014.

The downturn has seen container shipping performing weakly and erratically, and freight prices fluctuating wildly, it added. Major players have regularly reported negative operating profits since the crisis hit the industry in the second half of 2008.

Fitch Ratings said the efforts by the world’s three largest shipping companies—Maersk Line, Mediterranean Shipping Co., and CMA CGM—”to gain or maintain market share, often at the expense of price,” had worsened the situation.

“We believe this has run its course and that companies are shifting their focus more towards profitability. The size of freight-rate increases in March-May 2012 is evidence of this and should contribute to an improvement on Q112’s negative EBITDA for the larger players,” it added.

Container shipping’s underperformance has not only been due to deteriorating freight rates and weak demand—operating costs have gone up too, Fitch Ratings noted. Although bunker  prices have begun to fall from a peak of around US$720 per tonne in Q112 to around $600 per tonne in April and May, they remain high by historic standards. “Fuel costs are likely to continue to depress margins in the near-term,” it predicted.

Moreover, the container shipping industry is still struggling to recover from a frenzy of new ship orders in 2008, with a large number of new vessels expected to enter the world fleets in 2012-13. Attempts by some of the major players to address this oversupply—by retiring older vessels, delaying orders, or reducing capacity on key routes—have had limited impact, Fitch Ratings said.

“We don’t expect overcapacity to begin to reverse until 2014 at the earliest,” Fitch Ratings said in a press statement.

 

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