A London-based consulting firm has warned the container industry of “significant losses in 2011” as overcapacity fuels the continued erosion of freight rates in the key east-west trades.
Drewry Shipping Consultants forecasts a 20.8 percent year-on-year decline in 2011 for average east-west freight rates (excluding fuel) during a period when container volumes have remained strong.
“Container operators will find it a very challenging environment this year in which to make money, but there is a major difference between this year and the recession-ravaged 2009,” Drewry said in its latest issue of the quarterly Container Forecaster.
“We are forecasting an 8.1 percent growth in global container traffic for 2011 and so, other than rising fuel costs, responsibility for the inability to run their business models profitably can only be laid at the feet of the carriers themselves.”
Drewry said the continued launch of new services by ocean carriers on the key east-west trade lanes and upgrades with the latest 13,000 TEU giants delivered from South Korean yards have “severely contributed to overcapacity, with average load factors in the head-haul trans-Pacific and Asia to Europe routes remaining at only 80 percent to 85 percent.”
Carriers have got it wrong this year and “there has been an unwelcome and very quick return to the massive freight rate volatility so loathed by the shipper community,” Drewry added.
In this environment, freight rates have massively declined on the Asia to North Europe route, it said, where in some cases spot rates are not even covering quoted bunker surcharges of around $750 per TEU. Planned rate restoration programs have been postponed and there is little hope of carriers imposing meaningful peak season surcharges.
Drewry said the industry knows that laying up ships is the answer and that attempts to withdraw limited capacity from the main east-west trades is not enough “corrective surgery.” That many ships are just being recycled into other trade lanes is also merely transferring the pain elsewhere, it said.
Neil Dekker, editor of the Container Forecaster, said: “Contrary to what happened in 2009, there is currently no common strategy or discipline among carriers to lay up ships to redress the supply/demand balance.”
Drewry said the fueling of the newbuild market is not helping and “we are running the risk of repeating the mistakes of the ordering frenzy of 2007/08—the legacy of which the industry is still paying for now.”
Two million TEU of capacity has been ordered in the last 12 months and 80 percent of this is in the 8,000-plus TEU sector. Despite fears of a lack of funding from the financial sector, this does not appear to be a problem and some Greek owners are even placing speculative orders.
Drewry said Maersk has highlighted the need for a revolutionary way of thinking within the industry, but focusing on schedule reliability and environmental factors is not enough.
“Carriers need to properly address the fundamental aspects of supply and demand,” it said. “The deployment of 13,000 TEU ships, as is happening at the moment, into trades with load factors of 80 percent to 85 percent will not realize the savings and economies of scale that were envisioned when the orders were originally placed.”
