[160116.EN.SEA] Dark Days Ahead For Container Shipping, Say Drewry Analysts

DREWRY's Container Forecaster expects freight rates to have declined as much as nine per cent last year while carrier revenues will fall at a slightly slower pace this year.

Excluding 2009, the past 12 months has seen the lowest spot rates in most major trade lanes and all at the same time. This is not solely due to fundamental supply/demand imbalances caused by weak volumes and over supply, said London's Drewry's Maritime Research.

End of year 2015 spot rates from Asia to the US west coast and US east coast were around US$815 and $1,520 per FEU respectively, reports the American Journal of Transportation.

These were easily the lowest since 2009 and with decent cargo growth and load factors of over 90 per cent to the US west coast, the rate deterioration emphasise that carriers have been fighting for market share.

There are carriers also positioning themselves for the potential shifting of cargo from the west to the east coast after the Panama Canal widening, said Drewry analysts.

Spot rates of below $200 per TEU in the Asia-North Europe trade during June 2015 were also unprecedented.

While spot rates have staged a recovery since the start of 2016, Drewry believes that these gains will prove short-lived.

Many stakeholders point to the fact that bunker prices of $140 per tonne in Rotterdam (IFO380) are clearly contributing to lower overall container freight rates.

But Drewry believes that a new and worrying trend has become apparent for ocean carriers. "

"Our most recent data suggests that they are no longer able to cut costs faster than the prevailing declines seen in the freight rate market," said the report.

Drewry also believes that oil prices have probably hit bottom and costs for the positioning of empty containers and vessel lay ups will increase this year.

"Our latest calculation is that a 10,000-TEU vessel would incur a minimum of $450,000 in reactivation costs if laid up in Asia for three months or more.

It should also not be forgotten that many lines no longer even quote a BAF on some trade lanes. The consequence of this is that Drewry expects industry losses to widen to over $5bn in 2016," said the report.

Ocean carriers believe they have taken a great deal of corrective action during the final three months of 2015 to lift low freight rates.

But the removal of six major east-west services and the blanking of 32 voyages in November and 21 in December did relatively little to improve trade route supply/demand balances. At the beginning of October 2015, average headhaul east-west load factors were only 85 per cent, compared to 94 per cent one year earlier.

Rate hikes in late 2015 did not work for carriers on many trade lanes and in some cases were suspended or postponed because conditions were simply too feeble, said the report.

Drewry believes that more needs to be done by the industry to bring about any kind of stability. Proposed or forthcoming industry consolidation may well reduce the number of big market players and improve individual company efficiency, but this will not reduce industry vessel capacity in any way.

With the idle fleet touching one million TEU in late 2015, or just under five per cent of the global fleet, decisions need to be taken by lines to remove more vessels and re-structure more trade lanes with new operational agreements, the report said.

Big vessels no longer guarantee decent profitability and should Asia to north Europe contract rates be signed at an average $900 per FEU (and this could be too optimistic) for 2016, this equates to an estimated $1.4 billion loss for the carriers on one trade lane" it said.

Said Drewry container research chief Neil Dekker: "Comparisons are being made to 2009 when 1.3 million TEU was removed from a considerably smaller fleet. The mass scale lay-ups were triggered by the fact that lines ran out of cash.

"The industry is not there yet as some lines are still making a profit and the very low fuel prices are propping them up. But a further two or three quarters of declining financial profitability may trigger a notable rise in the idle fleet as we enter the second half of 2016," Mr Dekker said.

Source : HKSG.