Drewry: 2009 container industryÆs toughest test
“2009 will be the toughest test yet for the container industry” with the Asia/Europe trade route being hit particularly hard, Drewry Shipping Consultants said.
Drewry forecasts “meager growth” of 2.8 percent in 2009, down from 2008 when 152.8 million TEU were shipped, a 7.2 percent increase over 2007.
“This is certainly backed by the year-on-year throughput decline currently in evidence at the southern Chinese port of Shenzhen,” the London-based consultant said in a press release publicizing its latest quarterly Container Forecaster.
Drewry said four container operators, including the Chinese company SYMS and the Lonrho-backed SAILs, failed in late 2008 and concludes that “further casualties are real possibility.
“The gap between supply and demand is still too big. For the short to medium term, carriers can at best only stabilize freight rates that, on the Asia to Europe trade, have recently fallen to uncommercial levels.”
Tuesday’s Lloyd’s List quoted anonymous sources as saying freight rates in the Asia/Europe trades have dropped to zero for some spot cargoes. The paper said this was in the form of all-in rates that combine the base cost of ocean transport with fuel and currency surcharges of $350 to $400 per TEU — about what other lines are charging in the form of bunker adjustment and currency adjustment charges.
“We have not seen first-hand evidence of $0 base rates, yet,” said Philip Damas, division director for Drewry Supply Chain Advisors, but “we have heard of instances of $100 per TEU being quoted as a base rate from Hong Kong to Europe.
“But we would not say that it has become the average rate. The average base rate level is still around $200 to 250 per TEU, according to our market surveys. This is down from about $1,200 per TEU a year ago,” Damas said.
“It should be remembered that, besides the base rate, shippers also pay additionals — fuel surcharge, terminal handling charges etc. So, zero dollar freight rates never actually exist,” he said.
“Our view is that the most extreme, non-compensatory container freight rates in the current market are on the Asia/Europe route. These rates raise questions about the sustainability of Asia/Europe carrier services, and associated risks of carrier failure and supply disruptions for shippers,” he said.
Drewry said the slow-steaming strategies that many carriers adopted to save fuel costs last year “has also been turned on its head by the fall in crude prices.
“East-west strings are now being operated by 10 and 11 ships with extra port calls being added just to soak up capacity. While this was mainly confined to the Asia/Europe trade, carriers are now desperately seeking any means to utilize capacity without physically laying up vessels.”
Neil Dekker, the Container Forecaster editor, said, “Shipping lines and ship owners are in a precarious position since they can do almost nothing to determine freight rates, charter rates and asset values for their ships. Even at such low prices, it is not a buyer’s market for potential charterers or ship purchasers because demand and credit lines have dried up.
“With no likelihood of significant cancellations in 2009, the global fleet is still expected to increase by 12.7 percent — way ahead of demand. Even with some tonnage taken out of the market in 2010-12 through cancellations and increased annual slippage factors playing a part, this is not helping the global supply/demand balance to any significant extent. Our supply/demand index forecasts for the next four years are now very pessimistic.”
“Long-held industry rules have changed or become skewed. This is because the downturn happened so dramatically that, supply/demand mechanics in all trades have faltered at the same time. There are no bright lights left for the industry,” Drewry said.
“The relationship between volume growth and GDP expansion has also become distorted, differentiated charter rates currently do not exist and freight rates are being determined by factors other than simply falling demand. Further, carriers and alliances are seeking vessel-sharing or service sharing agreements they would not have contemplated 12 months ago.
“There are very few positives at the moment apart from the fact that bunker prices have greatly reduced and scrapping levels have increased. Carriers are continually reassessing their capacity deployment strategies as it seems that the recent suspension of a number of east-west strings is still not bringing the supply/demand balance back into line in order to stabilize freight rate erosion,” it added.
Laying up ships is a last resort for the container industry, but Drewry predicted, “it will become more of a feature throughout 2009 as cascading of tonnage can no longer be seen as an effective capacity management tool.” ' Chris Dupin