[070710.EN.SEA] Drewry: Look To Big Carrier Losses In 2011 As Overcapacity Rattles Rates

CARRIERS can expect "significant" losses this year as they can't make money from east-west trade routes because of rate volatility brought on by too much shipping capacity, according to London shipping consultants Drewry's latest quarterly Container Forecaster.

Even a demand surge in the coming peak season will not be enough to effect a turnaround because rates have declined too far on the Asia-Europe and transpacific routes, the Drewry report said, adding that capacity withdrawals would not be enough to reverse the situation at this point.

"Planned rate restoration programmes have been postponed and there is little hope of carriers imposing meaningful peak season surcharges," said the report.

"Contrary to what happened in 2009, there is no common strategy or discipline among carriers to lay-up ships to redress the supply/demand balance," said Neil Dekker, the editor of the Container Forecaster.

"The dilemma is that each carrier is aware that its top priority is to be cost-competitive, even if the collective impact of individual orders for lower unit-cost vessels is weakening the market."

Freight rates are expected to decline 21 per cent on the main east-west trade lanes this year, even though volumes have remained strong, reports London's International Freighting Weekly.

Other than increasing fuel costs, the expected losses would be due to carriers' "inability to run their business models profitably" by adding too much capacity to the market, said Drewry.

"Ocean carriers have continued to launch new services in the key east-west trade lanes, many of them also upgraded to the latest 13,000 TEU giants. This has severely contributed to overcapacity, with average load factors in the head-haul transpacific and Asia to Europe routes remaining at only 80-85 per cent.

"In this environment, freight rates have massively declined on the Asia to North Europe route, where in some cases, spot rates are not even covering quoted bunker surcharges of around US$750 per TEU.

Source : HKSG, 07.07.11