Ocean cargo carriers are regrouping on rates

Drewry’s latest Container Forecaster report highlights higher freight rates for ocean cargo carriers in 2012 and 2013 together with improved prospects for sustained profitability.

The recent successful implementation of significant rate restoration initiatives by carriers in the core east-west trade lanes means that most are now operating above break-even, said analysts with Drewry’s Container Research – a London-based industry think tank.??

The report noted that carriers took sufficient capacity out in the winter months to ensure that recently re-activated services have not caused too much damage to the supply/demand balance and load factors on the eastbound transpacific remain strong. However, with the worsening situation in Europe, analysts do not foresee a strong peak season this year and said carriers will experience some rate erosion during the summer months.

Evergreen’s decision to launch another weekly loop this month is not a positive and the Asia-Europe trade is most at risk because of the need to fill more “mega” vessels every week, added analysts.?

Drewry is forecasting 4.3 percent global container growth this year. Analysts said that capacity management throughout the second half of 2012 is crucial if carriers are not to undo all of their efforts to force rates back up to profitable levels.

The main reason for the recent spot rate successes has been the universal determination of all lines and rates have more than tripled on the Asia-Europe trade since March.?

Depending on the overall development of costs, and particularly fuel, analysts forecast that after total carrier losses of over $6 billion in 2011 and an “appalling” first quarter this year, carriers could make as much as $1.8 billion profit or a loss of $1.3 billion – which should provide a decent platform for 2013 when demand will improve slightly.   ?

Fitch Ratings recently declared that the world’s largest container shipping companies are beginning to reap the benefit of a more rational approach to pricing.

For Drewry, however, it is a little too early to determine if carrier strategy has truly changed towards profits, but the signs are that they remain determined to keep rates at as high levels as possible. Yield management and the movement of rates to more acceptable levels are key aims for all carriers and if spot rates hold for the rest of the year, carriers will be in a strong position for the re-negotiation of shipper contracts in 2013.  ?

Shippers will pay more for their transportation in 2013, although anecdotally analysts hear positive feedback about the influence that the Daily Maersk service is having in the Asia-Europe trade on shippers’ supply chains.

“Responsible commercial pricing will eventually help to iron out the huge volatility we have seen since 2008, creating a more stable service platform as carriers will be less likely to pull services quickly when they become unprofitable. The rhetoric coming from the new boss of Maersk in Copenhagen is that the company is concentrating on profit now – this does bode very well for the industry,” said Neil Dekker, head of Drewry container research.

According to Dekker, the industry has started to find a new “equilibrium” and it needs to settle down and continue to create an environment of stability.

“Since we do not see significant demand growth in the headhaul east-west trades next year, the industry must refrain from ordering new ships in the next 18 months to enable a return to a more normal supply-demand balance in the medium term,” he added.