Drewry forecast bleak outcome for 2011 despite container growth of 6.5%


Drewry Maritime Research, the London-based shipping consultants, claims that the shipping industry could lose as much as US$5.2 billion in 2011.

Despite a projected global container growth of 6.5 percent, Drewry found that by analyzing figures from the third quarter of 2011 and end of year industry dynamics, last year was a year to forget for container lines.

Continued vessel overcapacity, poor headhaul growth on the major east-west routes and the continued fight for market share amongst the lead players ensured that spot rates eroded by more than 50% on the key headhaul routes by the end of 2011, said Drewry.

Drewry also noted that despite attempts in the final months of the year by ocean carriers to reduce capacity on a number of services, spot rates failed to rise by a significant margin. However, Drewry state that rates are expected to rise as we approach the Chinese New Year.

The major task that shipping lines face in 2012 is ensuring that they remain competitive on slot costs with the introduction of larger vessels on all key trade routes. With Maersk introducing its new “Daily Maersk” service on the Asia-Europe trade lanes in November, a number of ocean carriers have joined forces, including CMA CGM and MSC, to share costs and services to provide a competitive alternative. The service structures will be finalised by April 2012, although many carriers will continue to receive big ships throughout the rest of this year. With three major groupings in place, the remaining small players with sub 8,000 TEU ships will find it extremely difficult to survive in this intense environment, according to Drewry.

In 2012, the world’s shipping fleet with a capacity above 8,000 TEU will increase by 25 percent. This growth will serve as a huge challenge for the industry, with Drewry forecasting decent demand growth only in the emerging markets of Latin America, Indian Subcontinent, Africa and intra-Asia, where vessels with a capacity below 8,000 TEU are operational. Overall global demand growth for 2012 is forecasted at 5.4 percent, according to Drewry.

With a number of shipper contracts being signed on the Asia-Europe trade in 2012 for about $1,100 per 40ft all in, levels that are below break-even, sustained revenue increases will be scarce as the current supply/demand fundamentals on the key east-west trades are not strong enough, note Drewry.

“We believe that at the current burn rate, carriers’ cash reserves will run out during the second half of 2012. If they do not put a substantial amount of tonnage into lay-up by this time, the consequences could be dire,” comments Drewry’s head of container research, Neil Dekker.

Alhtough vessels from suspended services are being deployed on alternative routes, Drewry also estimate that the number of ships being layed up or idled could reach 8 percent of the entire global fleet, equal to nearly 1.4 million TEU.

“Carriers will at some stage in 2012 be forced to idle tonnage, even if the lead players are showing no inclination to do so at the moment. This will enable a partial recovery in spot rates during the second half of this year,” added Dekker.

“In the meantime, the industry will continue to change its structure as all stakeholders adapt to the difficult conditions. We still do not foresee any company acquisitions, as was the case in 2009 and consolidation is more likely to happen through the disappearance of small players.”

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