Drewry: Oversupply, low rates, high oil, spell carrier losses in 2011
CONTAINER shipping lines will find it hard to profit in 2011 as
east-west rates decline and bunker costs increase, according to a
Drewry Shipping Consultants latest Container Forecaster. Friday, 15.Apr.2011, 01:35 (GMT+3)
CONTAINER shipping lines will find it hard to profit in 2011 as east-west rates decline and bunker costs increase, according to a Drewry Shipping Consultants latest Container Forecaster.
Drewry expects east-west freight rates excluding fuel will fall 13.2 per cent year on year in 2011. "The market is clearly out of kilter and a correction is required," said the Drewry report.
The quarterly Container Forecaster said east-west headhaul trades have declined since reaching August high points, said the report, blaming an excess tonnage and that only a few carriers suspended services in the slack winter season.
"This is not due to any weakness in demand," said the forecast's editor Neil Dekker, who sees transpacific volume growing 8.8 per cent eastbound and 9.1 per cent westbound.
Instead, Mr Dekker blamed a quest for market share that has resulted in an excess of supply leading to a fall in transpacific and Asia-Europe spot rates of 40 to 50 per cent year on ye
"There is a serious risk that unless spot rates recover in the next four to six weeks, recently signed annual rates in the eastbound transpacific might be above the spot market, which will lead to re-negotiations," said Mr Dekker.
Unless the rate decline is checked, "a number of lines" could suffer losses, he said, reported Newark's Journal of Commerce. Drewry's latest forecast is a change from its December report when it predicted carrier profits would fall to US$7 billion to $8 billion this year, down from $19 billion in 2010.
"The industry is well accustomed to profit swings, but if industry profits vanish this year, it would mark possibly the shortest business cycle container shipping has ever seen," Drewry said, reported American Shipper. "In the space of three short years the industry will have gone from bust in 2009 (-$19 billion) to boom in 2010 (+$17 billion estimated) and back to bust (small profit or loss) in 2011."
Transpacific vessel capacity was predicted to increase 15 per cent on the eastbound in the second quarter and 15.2 per cent westbound year on year with utilisation in the third quarter dropping to 87.5 per cent eastbound and 46.1 per cent westbound.
Bunker price increases to $650 per tonne means Asia-Europe spot rate surcharges will only contribute only $200 to $300 per TEU, said the report.
Carriers must stop Asia-Europe "all-in" pricing " if they are not to lose revenue," said Drewry. "This will not help the implementation of any planned carrier [general rate increases] GRIs or peak season surcharges," Mr Dekker said.
"The warning signs were there in the fourth quarter as carriers were unable to sustain the upward momentum in profits of the first three quarters of 2010 as higher costs, oversupply and reducing load factors kicked in," Mr Dekker said.