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MARKETS

Drewry: Mega-ship craze risks lay-ups in any rate war
Drewry: Mega-ship craze risks lay-ups in any rate war


THERE is uncertainty over how shipping lines will manage to cascade bigger ships into North America trades, according to London's Drewry Maritime Research paper, "Unmasking Freight Rates".Friday, 25.Mar.2011, 23:55 (GMT)
THERE is uncertainty over how shipping lines will manage to cascade bigger ships into North America trades, according to London's Drewry Maritime Research paper, "Unmasking Freight Rates".

"In the best case scenario (ie, better capacity management and cascading, less emphasis on market share, more on profitability, and fewer ships orders) we can see carriers being able to maintain load factors at levels that should deliver solid if unspectacular profits over the next few years," said Simon Heaney, one of the authors, according to American Shipper. "In the worst case, we think carriers will be forced into more lay-ups."

Asked about what impact Maersk Line's recent order of 18,000-TEU ships may have on rival container shipping lines, Mr Heaney said: "Logic and the order book are not always in sync. It is unlikely we will see the same deluge as seen in 2006-2007, mainly because financing is tougher to come by and the KG market is much shallower and somewhat humbled.

"That said, ego plays a big role in container shipping and there is every chance that having seen what Maersk has done with its 18,000-TEU order, some rivals will feel compelled to react.

"As 2011 progresses there has been more momentum with orders placed in the big ship sizes: Seaspan, Hamburg Sud and now OOCL. The primary incentive from the carrier perspective is to have ever lower slot costs, but the combined effect on the supply/demand balance at the individual trade route level - given that these ships cannot be deployed on too many routes - could be very different at the time they are deployed. We see this momentum as an increasing threat, especially with more outsiders entering the fray with readily available funds," he said.

Mr Heaney said that central to the report, which looks at prospects over five year, is an attempt to discover how capacity affects rates, chiefly the impact of supply and demand on rates.

"Basic supply/demand economics is the major driver of freight rates," he said. "Our historical analysis shows that the closeness of the relationship varies depending on the time period and trade lane examined and that other factors such as sentiment, new entrants into markets, predatory pricing and future expectation of overcapacity among other modifiers can all have a big influence on prices."

Mr Heaney said there is a floor at which point carriers will remove tonnage in order to boost utilisation and rates. For the westbound Asia-Europe trade, Drewry estimates this minimum to be in the mid-60 per cent range.

Commenting on carriers' earning capabilities in the coming years, Mr Heaney said: "We believe future carrier profitability will be put at risk by repeating the market share grabbing antics that nearly bankrupted some of them in 2009. This is a very real threat as anecdotally we hear that carriers are agreeing to very low freight rate deals in order to tie in volume this year on services where utilisation factors are falling."

Read: 6436 Times- Drewry, rate war, -


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