Shippers should expect fluctuating rates in 2011 as shipping lines are once again focusing on marketshare at the expense of profitability.
Shippers should expect fluctuating rates in 2011 as shipping lines are once again focusing on marketshare at the expense of profitability. According to industry consultant Drewry’s latest Container Forecaster report, shipping lines failed to learn the lessons of 2009 – when rates nosedived because carriers sought to gain market share. The report predicts that average east-west rates, excluding fuel, will drop 7% this year and carrier profitability will fall back into the US$8 billion range – although this could be “considerably” lower if carrier pricing and capacity discipline weakens further. The fact that no major companies “went to the wall” insulated the industry from “the despair of 2009 and there is now the feeling that perhaps the dark days did not happen”, says the report. Neil Dekker, Editor of the Drewry Container Forecaster, said: “Unfortunately, the desire to maintain marketshare seems to be the primary driver in the east-west trades at the moment. “Carriers have resolutely refused to take out capacity from the marketplace, despite the fact that head-haul utilisation factors were in the low 80s [in mid-December] and spot rates were falling steadily week by week. “Although carriers released record, or near-record, financial results for 3Q, this is no time for complacency and concentrating on marketshare instead of profitability. “The trends being displayed are the same as were evident in recent times and are usually the precursor of a downward spiral in the market.” But Dekker added that the bigger carriers were the happiest with no long-term profitability as long as they had marketshare. “However, the utopia of freight rate stability sought by shippers seems a long way off if carriers abandon their short-lived prudence and profitability,” he added. Dekker also warned that the industry was again becoming a buyers’ market. He said: “Just before the crucial contract re-negotiation period, carriers are passing any aces to their customers once again, but shippers maintain that they do not necessarily just want low rates – they also want a sufficiently reliable service. “The US Federal Maritime Commission is also suggesting that both parties talk to each other more, but unfortunately, it seems that some carriers are not necessarily heeding this message. “It is also time for shippers to bring more detail and information to the negotiating table, and anecdotally, we hear that this process is starting to happen.” Drewry pointed out that a number of carriers had placed orders for new vessels while others had indicated their intention to buy new ships.
