Subscribe to our free, weekly email newsletter!


Excess capacity will keep ocean freight rates down

Alphaliner, the Paris-based shipping consultancy, reported that 19 of the top 25 ocean carriers it surveyed earned an estimated $14 billion in 2010, after losing $15 billion just the year before.
By Patrick Burnson, Executive Editor
April 19, 2011

While the world’s leading cargo vessel operators had seen a remarkable reversal of fortune last year, industry analysts predict the turnaround will be “short-lived.”

Alphaliner, the Paris-based shipping consultancy, reported that 19 of the top 25 ocean carriers it surveyed earned an estimated $14 billion in 2010, after losing $15 billion just the year before.

“Container carriers’ margins recovered strongly in 2010 to a positive 7 percent from a negative 16 percent in 2009,” said Alphaliner.

But analysts added that margins in the Asia-EU trade have softened, and that 2011 is likely to be a much weaker year in general.

Indeed, container rates have been sliding on all the major trading lanes since July 2010, with the exception of a small “hiccough” in last winter, as liner companies tried to push for implementation of general rates increases in a weakening market, said analysts at BIMCO in Copenhagen.

“The anticipated strong volume rebound following the Chinese Lunar New Year did not materialize, and that resulted in continued descending rates on most trading lanes,” said BIMCO’s Peter Sand in an interview.


Oversupply in the main routes is the reason behind the weak freight rates. The idle fleet of container ships now stands at 84 vessels, with a total cargo capacity of just 185,000 twenty-foot equivalent units (TEUs), the lowest level since November 2008. At the peak in January 2010, 1.5 million TEUs were idle.


“Severe overcapacity is poison to any freight market, as rates continue to decline even though volumes are growing fast…but not enough,” said Sand. “Cascading remains a part of the game. It gives little comfort that freight rates on minor intra-Asian routes have recently gone up by 10-20 percent.”


Meanwhile, on the supply side, scores of “mega vessels” have been delivered into the Asia-Europe trade during 2011. BIMCO analysts said that spot rates would not be returned to sustainable levels until the Peak Season in the third quarter on main trading lanes from Asia to Europe and the U.S. West Coast.


“To restore freight rates significantly over the coming quarter, idling of vessels ought to be considered an option,” said Sand. “That is, however, not expected to happen and that could jeopardize peak-season earnings even if solid consumer confidence is restored and the high unemployment figures start to come down.”

For related articles click here.

—-

About the Author

image
Patrick Burnson
Executive Editor

Patrick Burnson is executive editor for Logistics Management and Supply Chain Management Review magazines and web sites. Patrick is a widely-published writer and editor who has spent most of his career covering international trade, global logistics, and supply chain management. He lives and works in San Francisco, providing readers with a Pacific Rim perspective on industry trends and forecasts. You can reach him directly at .(JavaScript must be enabled to view this email address).


Subscribe to Logistics Management magazine

Subscribe today. It's FREE!
Get timely insider information that you can use to better manage your
entire logistics operation.
Start your FREE subscription today!

Recent Entries

The report, entitled “Outlook for the Domestic Transport and Logistics Market in 2H14 and Beyond,” takes the view that strong freight levels in the second quarter have left trucking companies in a good position: one in which they need to come up with new plans to handle rising demand. But even with that positive momentum afloat, the report observes that there are some familiar challenges intact, such as a lack of qualified drivers and the regulatory drag from the new hours-of-service rules that took effect in July 2013.

Flags of Convenience are a fact of life in the commercial maritime trade, but several European political action groups are worried that they will pose a threat to the Continent’s air cargo industry.

For May, which is the most recent month for which data is available, the SCI is -7.5, following April’s -7.5. FTR said this reading represents a still-tight capacity environment, as utilization rates hover between 98 percent and 99 percent.

With a 1.1 cent drop to $3.858 per gallon, this follows declines of 2.5 cents, 1.9 cents, and 0.7 cents over the previous three weeks, with the cumulative four-week decline at 6.2 cents.

Second quarter revenue for transportation and logistics titan UPS headed up 5.6 percent annually at $14.3 billion, while operating profit sank 57.1 percent to $747 million. Quarterly net income fell 57.6 percent to $454 million.

Comments

Post a comment
Commenting is not available in this channel entry.


© Copyright 2013 Peerless Media LLC, a division of EH Publishing, Inc • 111 Speen Street, Ste 200, Framingham, MA 01701 USA