Drewry: Some carriers will lose money in ?11

Drewry: Some carriers will lose money in Æ11    Some container shipping lines may struggle to break even in 2011 after netting huge profits in 2010, according to the latest edition of Drewry Shipping Consultants' Container Forecaster.
   The dire projections come as lines have largely ignored the lessons learned in 2009 and engaged in reckless rate cutting, the London-based consultant said.
   'In December, Drewry forecast that container shipping industry-wide profits will be reduced to $7 billion to $8 billion this year, down from the $17 billion bonanza of 2010,' Drewry said. 'However, ill-discipline on rates and capacity management, combined with escalating operating costs, means that Drewry now thinks that many carriers will struggle to break even.
   'The warning signs were there in the fourth quarter of last year as carriers were unable to sustain the upward momentum in profits of the first three quarters of 2010 as higher costs and some oversupply of tonnage (reducing load factors) kicked in. The erosion in freight rates has continued in the first three months of 2011, which unless checked very shortly could lead to losses at a number of lines at least in the short term.'
   Drewry's quarterly Container Forecaster projects that east/west freight rates excluding fuel will fall 13.2 percent in 2011.

Dekker

   'A large dose of common sense is needed by the container industry and the direction it takes in the second quarter is in the hands of the carriers,' said Neil Dekker, editor of the Container Forecaster.
   The report indicates that freight rates on headhaul east-west trades have declined despite no 'inherent weakness in demand,' with the consultant projecting global volume will rise 8.3 percent in 2011. Drewry is pinning the falling rates on carriers returning to a strategy of chasing market share, leading to reductions in spot rates on the transpacific and Asia/Europe trade of 45 percent to 50 percent since August 2010.
   Fuel prices also continue to affect potential profits. Drewry said all-in spot rates limit carriers' ability to capture the true extent of fuel price increases.
   'The industry is well accustomed to profit swings, but if, as seems likely, industry profits vanish this year, it would mark possibly the shortest business cycle container shipping has ever seen,' Drewry said. 'In the space of three short years the industry will have gone from bust in 2009 (-$19 billion) to boom in 2010 (+$17 billion estimated) and back to bust (small profit or loss) in 2011.'
   The report is available at www.drewry.co.uk.