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 - 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.”

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

Last week, the United States Department of Transportation took further steps to address various issues identified in recent train accidents involving crude oil and ethanol shipped by rail. The announcement was made by DOT with other DOT agencies, including the Federal Railroad Administration (FRA) and the Pipeline and Hazardous Materials Safety Administration (PHMSA).

Logistics Management Group News Editor Jeff Berman had an opportunity to interview Derek Leathers, President and Chief Operating Officer of Werner Enterprises, at this month's NASSTRAC Shippers Conference and Transportation Expo in Orlando. They discussed various aspects of the truckload market, including prices, fuel, and regulations.

During this webcast our presenters will apply the findings of the 23rd Annual Trends & Issues in Transportation and Logistics Study to the world of shipper-carrier decision making. They'll examine the primary aspects that will influence the future direction for shipper-carrier decision-making.

For February, the month for which most recent data is available, the SCI dropped to -1.0 from January’s 2.6, with FTR explaining that the short term positive impact from one-time adjustments for rapidly dropping diesel prices and the suspension of the 2013 motor carriers hours-of-service expires later this year.

Seasonally-adjusted (SA) for-hire truck tonnage in March was up 1.1 percent on the heels of a revised 2.8 percent (from 3.1 percent) February decline, with the SA index at 133.5 (2000=100). This is off 0.3 percent from the all-time high for the SA of 135.8 from January 2015 and is up 5 percent annually.

About the Author

Patrick Burnson, Executive Editor
Patrick Burnson is executive editor for Logistics Management and Supply Chain Management Review. Patrick covers 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. Contact Patrick Burnson

Comments

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


© Copyright 2015 Peerless Media LLC, a division of EH Publishing, Inc • 111 Speen Street, Ste 200, Framingham, MA 01701 USA