Drewry: Liner industry yet to turn the corner

   The Asia-Northern Europe trade looked to have turned a corner in the past month, with recent spot rate levels rising.
   But the London-based consultancy Drewry warned that the industry should not be “lulled into a false sense of security” in its latest Container Forecaster report
   “The perception might be that the industry has turned a corner and the extremely low freight rates seen on the Asia-North Europe trade at the end of last year are now behind us,” Drewry said. “We concur with this general view to an extent and we forecast that east-west freight rates including fuel will rise by as much 13.7 percent this year.”
   Drewry cautioned that considerably higher spot rates should not lead carriers to think that “all is now fixed.”
   “It is clear that higher rates enabling ocean carriers to cover their rising costs and turn a profit is a far healthier position, but there are still a number of factors which threaten this,” Drewry said. “Demand is by no means certain and we have downgraded our 2012 global forecast to 4.6 percent, largely on the basis of a weak Eurozone, crippled by debt.”
   In the report, Drewry has revised its estimated 2011 losses for the industry to at least $6.5 billion, a year that saw global demand growth of 7.4 percent.
   “This was very much a missed opportunity for carriers to build on their surprisingly strong recovery in 2010,” Drewry said. “This year will mean they will take some time to make up for this lost ground, rather than moving forward and we still expect 1Q12 carrier financial results to be weak, although their position will improve as the year progresses.”
   Drewry said the a proposed $800 per TEU rate hike in March on the restructured Asia-Europe trades “bemused virtually everyone.”
   “Few believed it would be successful, but carriers have stood firm during a period when load factors have not necessarily been in the high 90s on the headhaul leg,” the report said. “It seems that their recovery into profit is very much dependent on this resolve to maintain the (rate increases) and little else since they resolutely refuse to put significant tonnage into lay-up. This year will see another 59 ships of at least 10,000 TEUs enter the global fleet.”
   On the transpacific five new services are being launched before June and Drewry projects that this will put continued pressure on spot rates and the ability for carriers to push through the significant increases they are seeking in the current May contract negotiations.
   “Until the inherent structural capacity is truly tackled, we will continue to have periodic and violent bouts of overcapacity that will keep rates and operating margins yo-yoing up and down,” said Neil Dekker, head of Drewry’s container research. “It seems evident that carriers do not truly see the severity of their situation since the number of ships in actual full term lay-up is fairly small. As of early March, the idle or inactive fleet had grown to around 5.4 percent of total global capacity, but only 47 vessels above 5,000 TEUs were included in this figure and a number of these are being re-deployed on new services.
   “This is only stage-one in the recovery process and how 2012 pans out will be very much dependent on carriers’ commercial behaviour and their strategy for laying up ships as well as the relative health of the industry fundamentals.”