Excess capacity will keep ocean freight rates down
April 19, 2011 - LM Editorial
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.”
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