Xeneta warns Panama Canal expansion could push down freight rates
NORWEGIAN container research house Xeneta has sounded a warning that the newly widened Panama Canal may not be as beneficial as it seems for containership carriers.
The widened canal will potentially double the waterway's capacity, giving neopanamax vessels access for the first time, the increased efficiencies may actually undermine rates.
This is deepen the present crisis for a segment already suffering the strains of severe over capacity and cutthroat competition, a company statement said.
Xeneta - which boasts a database of 12 million contracted ocean freight rates, crowd sourced from 600 major international businesses -has charted a spectacular fall in container rates over the last two years.
As an example, the short-term market average rate for transporting an FEU from Shanghai to Rotterdam has fallen by 60 per cent since summer 2014 to currently standing at US$941.
The Panama Canal extension was meant to be a boon for carriers, giving vessels carrying 13,000 TEU all-water access from Asia to US east coast ports and inland markets. But, according to Xeneta CEO Patrik Berglund, this neopanamax short cut could come at a crippling cost.
"On the face of it improved transit times and two-way traffic deliver huge benefits for container carriers," he notes, "facilitating more cargo to the US east coast and Caribbean ports faster and cheaper. However, there could be real trouble brewing on the horizon.
"Firstly, the neopanamax vessels have to attract trade to this fresh route, and this could initially force them to keep rates artificially low - the last thing the industry needs. Then we have the fact that more ships will be able to compete on the east coast, potentially pushing rates even lower.
"This will most probably be exacerbated by the newly arriving fleets of 18,000-to 20,000 TEU ships - MSC has four in the pipeline now - causing a cascading of existing tonnage onto attractive routes, like the east coast. It all spells, what could be, an impending financial disaster for a segment currently defined by consolidation, new alliance-building, and on-going uncertainty."
Mr Berglund is backed up in his analysis by Rosemont College professor Andrew Lubin, a specialist in container freight and logistics. He notes that, at present, 68 per cent of container movement from Asia into the US east coast comes via the west coast, but believes that about 10-14 per cent of that will be diverted to the Gulf and east coast ports within the year.
NORWEGIAN container research house Xeneta has sounded a warning that the newly widened Panama Canal may not be as beneficial as it seems for containership carriers.
The widened canal will potentially double the waterway's capacity, giving neopanamax vessels access for the first time, the increased efficiencies may actually undermine rates.
This is deepen the present crisis for a segment already suffering the strains of severe over capacity and cutthroat competition, a company statement said.
Xeneta - which boasts a database of 12 million contracted ocean freight rates, crowd sourced from 600 major international businesses -has charted a spectacular fall in container rates over the last two years.
As an example, the short-term market average rate for transporting an FEU from Shanghai to Rotterdam has fallen by 60 per cent since summer 2014 to currently standing at US$941.
The Panama Canal extension was meant to be a boon for carriers, giving vessels carrying 13,000 TEU all-water access from Asia to US east coast ports and inland markets. But, according to Xeneta CEO Patrik Berglund, this neopanamax short cut could come at a crippling cost.
"On the face of it improved transit times and two-way traffic deliver huge benefits for container carriers," he notes, "facilitating more cargo to the US east coast and Caribbean ports faster and cheaper. However, there could be real trouble brewing on the horizon.
"Firstly, the neopanamax vessels have to attract trade to this fresh route, and this could initially force them to keep rates artificially low - the last thing the industry needs. Then we have the fact that more ships will be able to compete on the east coast, potentially pushing rates even lower.
"This will most probably be exacerbated by the newly arriving fleets of 18,000-to 20,000 TEU ships - MSC has four in the pipeline now - causing a cascading of existing tonnage onto attractive routes, like the east coast. It all spells, what could be, an impending financial disaster for a segment currently defined by consolidation, new alliance-building, and on-going uncertainty."
Mr Berglund is backed up in his analysis by Rosemont College professor Andrew Lubin, a specialist in container freight and logistics. He notes that, at present, 68 per cent of container movement from Asia into the US east coast comes via the west coast, but believes that about 10-14 per cent of that will be diverted to the Gulf and east coast ports within the year.