SeaIntel: Low rates dictated by major lines

   Low ocean freight rate levels on the major east-west trades this year are fundamentally different from those seen in 2009, the maritime analyst SeaIntel said this week.
   In its SeaIntel Sunday Spotlight report, the analyst argued certain major container lines have a vested interest in keeping rates low to drive down the number of players in key trades, most notably the Asia-Europe trade.
   “During the downturn in 2009 carriers acted tactically,” the report said. “When rates became unsustainably low, they laid up capacity in order to restore profitability. Largely, it would seem the downturn was driven by an external factor – the collapse of demand globally – combined with over-exuberant ordering of vessels across the board.
   “Consequently, almost all carriers saw a benefit in laying up vessels in order to restore the market. The current downturn is markedly different. Demand growth has been weaker than usual on the main trades, but from a global perspective growth levels have not been too bad.
   “More importantly, the current order book appears to be a deliberate strategic move by some of the large players in the market – most notably COSCO, MSC and Maersk Line – to force through a consolidation in the market, particularly on the Asia-Europe trade.
   “CMA-CGM does not appear to have the strength to follow through on this, as witnessed by the recent news that they were denied the opportunity to order more large vessels, whereas CSCL seems to attempt to follow suit with the large players with their recent order,” SeaIntel wrote.
   SeaIntel speculates that if the current low freight rate environment may persist on the Asia-Europe and transpacific lanes, “until the carrier(s) with the weakest financial positions are forced to remove substantial amounts of capacity from these trades.”
   The lines with strength, SeaIntel added, would be in a position to widen market share in 2012 if container demand rebounds.
   “If the market strengthens in 2012, we would expect the larger players to deploy additional capacity quite rapidly, partly to grow their own market share, but also in a pre-emptive move to prevent the small and medium-sized players to regain any lost market share,” the report said. “The large players would furthermore have a strategic interest in preventing rates from spiking as much as they did in 2010 – simply to deny carriers who are less financially solid the ability to fully recuperate in 2012.
   “Even though the medium sized carriers might not have substantial order books, they might still have a strategic intent to procure existing vessels (or existing vessels on order) at a later stage,” SeaIntel said. “This would not be in the strategic interest of the large players, and we expect these (lines) will attempt to gain control of any such vessels, should they become available at attractive prices.”