Drewry: Box carriers wrest back control
Liner carriers have taken back control of the container-shipping industry through new initiatives that manage capacity, according to Drewry's Annual Market Review & Forecast 2010-11, released Tuesday by the U.K.-based consultant.
'By cutting back capacity mainly through layups and slow steaming now on a global scale, all the major carriers survived the downturn,' Drewry said. 'Sixteen of the world's biggest will return to profitability this year making an estimated $5 billion. The question is, will they hold the line?'
The balance is still fragile, and 'any larger carrier breaking rank could push the fragility of recovery to breaking point,' said Neil Dekker, editor of the report.
“Carriers will react decisively by taking capacity out of the system and will not return tonnage in 2011 until demand has shown the required upturn,' Dekker said. 'Maintenance of the positive supply/demand equilibrium next year is dependent on the continuation of this disciplined approach. Layups could be a feature if there is any fear of overcapacity returning. By managing capacity at the individual trade route level, they have been able to rapidly improve freight rates and their profitability.”
Drewry also said carriers' willingness to restrict capacity has fundamentally changed the relationship between carriers and shippers.
'The basic contract between shipper and carrier should no longer be seen as a straight rate deal,' Drewry said. 'A combination of slow steaming, fewer weekly strings and increasing vessel-sharing agreements between carriers means that the traditional carrier-shipper partnership has changed forever. Shippers and carriers need to think much more creatively and need to work together constructively to provide much needed security in the supply chain. The relationship between the two parties must be repaired and carriers must now look to properly differentiate themselves once again from their competitors.'
That said, shippers' inability to largely project forward sales figures will hamper the relationship in the face of the carrier industry's ability to pull capacity, according to the report.
'Consumption levels and buying patterns have changed, making it difficult for importers to match forward inventory to sales,' the report said. 'This has a knock-on effect for carriers when determining deployment plans ' an enormous task as they try to accommodate growing numbers of 10,000-plus-TEU vessels within their global service portfolios.'
Finally, the report warned that carriers won't be able to match this year's revenue improvements in 2011, but that the supply/demand balance is nearing even. That means revenue for carriers nearing 2008 levels should hold on a long-term basis.
American Shipper affiliate ComPair Data released a report, Taming Cyclical Rates: Have ocean carriers found the key to reining in the boom-and-bust cycle?, in late September chronicling how carriers effectively managed capacity to increase rates on the key east/west trades.