æModerationÆ the word for 2011
Analysts says container carriers can continue momentum if they maintain market discipline.
By Chris Dupin
Container transportation demand grew sharply in 2010, rescuing liner companies from what looked like a disaster in the making for much of 2009. But growth in container volumes is expected to slow in 2011.
'The word would be moderation for 2011,' said Paul Bingham, an economist at Wilbur Smith Associates. 'The factors that contributed to the sharp run-up in rates at the beginning of 2010 won't be as severe from a shipper perspective.'
From a carrier perspective, liner companies will not benefit from having as large a percentage of the containership fleet in layup as they did at the beginning of 2010, he said.
Nor are shippers likely to have the same perception that caused them to want to lock up capacity early last year because of uncertainty about capacity and demand.
'At this point, carriers are still profitable and it makes little commercial sense to withdraw capacity when the ships generate positive returns,' Tan Hua Joo, an analyst at maritime news service Alphaliner, told American Shipper in late October. 'Based on current observations, carriers are resisting to lay up vessels and are trying their best to keep vessels actively employed.'
Layups only reached the highs seen at the end of 2009 because of the record level of losses that carriers sustained, Tan said. 'At that point, the carriers are losing money for every box they carried ' so it was a no-brainer to cut capacity. Now that they are profitable again, the decision becomes more complex.'
Growing Supply. Alphaliner forecasts that 1.42 million TEUs of new containership capacity will be added to the world fleet in 2010, substantially above the 1.07 million TEUs delivered in 2009 and nearly as much as the record 1.57 million TEUs delivered in 2008.
The world fleet is expected to reach 14.3 million TEUs at the end of 2010, taking into account scrapping or conversion of ships with about 180,000 TEUs of container capacity.
Alphaliner expects 1.4 million TEUs of container capacity will be added in both 2011 and 2012.
Shippers also had to face a shortage of containers earlier this year, but Tan said production has picked up.
'Carriers have shown they are able to manage the shortage, by bringing back empties more efficiently than in the past,' though he noted this then became a problem for westbound transpacific shippers.
He said he expected the shortage of containers seen in May 2010 won't be repeated in 2011.
Gigantism. Alphaliner said a big change is coming to the world container fleet in terms of ship size.
It said about 276 containerships should be delivered in 2010, compared to 268 units delivered in 2009. Growing numbers of ships will have capacities of more than 10,000 TEUs. From 33 in 2010, Alphaliner forecasts 48 10,000-TEU ships are scheduled for delivery in 2011, 55 in 2012 and 29 in 2013.
• Better, not great
Those big ships, as well as large numbers of ships carrying 7,500 to 9,999 TEUs, are helping push up the average size of new ships. From 2009's average of 3,990 TEUs, ship size is expected to climb to 5,150 TEUs in 2010, 6,050 TEUs in 2011 and 7,015 TEUs in 2012.
As more 10,000-plus-TEU ships enter the Asia/Europe trade, there will be cascading of the ships they replace into other trades, including the transpacific.
'Cascading is now a necessity,' said Alphaliner's Tan. 'The Middle East and Latin America will see ships of up to 8,000 TEUs. The process has already started.'
Even the intra-Asia trade has been seeing larger ships (see related story, pages 31-33). Neil Dekker, editor of Drewry Shipping Consultants' Container Forecaster, said over the past several years, Panamax vessels have become more common.
His company's Annual Container Market Review & Forecast projects container volumes were up about 10.9 percent in 2010 and will be up just 8.1 percent in 2011.
Part of the reason for the lower growth projected in 2011 is that 2010 growth followed a historic downturn in global container traffic of 9.9 percent in 2009, he said.
Back To 2008. 'We are not quite back up to 2008 levels, but we are close,' Dekker said. 'There is a big recovery this year, but we do not feel there is going to be any sort of double-digit level, like perhaps we did back in the real boom period of 2003-2005. Mid- to long-term, up to 2015, we're looking at annual increases of about 7 percent, which is still good, but we don't see it quite returning to that boom period in the earlier part of the last decade.'
editor, Container Forcaster
Drewry Shipping Consulants
|'This is fairly new territory for carriers, because they have not always acted logically in the past. That is not a sensational statement, that's just a fact.'|
Some regions will see stronger growth, he predicts. The Far East, boosted by intra-Asia traffic, Latin America and the Middle East will fare better than more mature markets like Europe and North America.
Indeed, Drewry believes there is a need for some ports to look at reactivating terminal expansion plans that were stalled in 2008 and 2009 in some of those high-growth areas. Otherwise, it cautioned, it may be difficult to accommodate the anticipated growth.
Drewry's projection for the head haul on the three major east/west trade lanes are:
' Westbound Asia to Europe, up 7 percent in 2011 compared with 12.5 percent growth in 2010 and a 14.2 percent decline in 2009.
' Eastbound transpacific, up 5.6 percent in 2011 compared with 13.9 percent growth in 2010, following a 13.3 percent decline in 2009.
' Westbound transatlantic, up 3.2 percent in 2011, following 8.2 percent growth in 2010 and a 17.3 percent decline in 2009. (Dekker noted the transatlantic is becoming less important than it once was, smaller than the Asia-to-Middle East trade, which has been growing at a 10 percent to 15 percent clip.)
'In a nutshell, container trade is recovering well on the major routes, although some doubts remain about the short to mid-term,' Dekker said. 'Consumption levels and buying patterns have changed making it difficult for importers to match forward inventory to sales.'
'It's both a supply and demand story,' Bingham said. 'On the supply side, you have a lot more capacity deployed now. Even with the announced reductions that we have heard about from some of the steamship lines in terms of deployed capacity into slow season, it is extremely unlikely that the industry would take its capacity back to where they were coming into 2010.'
Carriers making seasonal adjustments in capacity are 'trying to marry up capacity better with the falloff in demand. In this key period before they renew the contracts, the carriers do not want rates to fall down too much before they sign the contracts with the big shippers,' Dekker said. 'For the European trade, a lot will renew in January, but in the transpacific, it is not until April-May.
'As far as the transatlantic is concerned it is a little different, because a few new services have come in recently, and perhaps the feeling is there might be a little bit too much capacity. But a lot of carriers brought in GRIs (general rate increases) for Oct. 1 and my understanding is they have been reasonably successful in getting some of that quantum in, but not full quantum.'
In the transpacific, Dekker expects carriers would first take out individual sailings late this year, then entire strings as demand weakens seasonally.
But he said in late October he did not expect rates to drop much more, and transpacific carriers would be very mindful of cutting rates too far as they begin to speak to shippers about renewing contracts.
'The key aspect will be, once the winter season is over and the new shipments come after Chinese New Year next year, how big is that cargo uptick ' and how quickly the carriers react to bring the capacity back in?' Dekker said. 'That will be testing the management skills of the carriers. If you think of what they did this year, they were quite careful and from their perspective, quite clever, in that they only brought back capacity that the cargo demand had really picked up.'
Bingham said carriers have been very innovative 'to consider as much reduction in service capacity as they have indicated they are going to pursue. But that is not the same thing as saying they are going to replicate conditions they had at the beginning of 2010 in terms of how much of the fleet is sitting at anchor, or operating even in a warm layup where you skip a vessel a week.
'Carriers will continue practices that have been beneficial to them such as slow steaming and being cautious about the deployment of capacity. But collectively across the industry, I just can't see them having quite the same tight situation in terms of vessel deployment and services,' Bingham said.
Tan agrees that with a combination of high fuel prices and cheap vessels, extra-slow steaming makes economic sense.
'Shippers can't really complain much with a two- to three-day increase in transit time. Especially if everyone else is doing the same and with the green credentials that carriers are attempting to put on,' he said. 'But it can only work in long-haul trades for which the process has already started. There aren't many more long-haul trades where extra-slow steaming is not practiced. The long-haul trades to the Middle East, Latin America and Australia are already on it. Africa not so ' but over there, port congestion is a bigger concern. Slow steaming doesn't work on short-haul trades. The Atlantic is somewhat in between.'
'There are so many unknowns on the demand front,' Dekker said. 'What carriers are going to do on the cascading, capacity management or layup front depends on how quickly they are going to return ships in March-April-May next year.
'A lot will depend on carrier behavior. If they continue to behave as they have over the past 12 months where they have been a lot more logical and focused on profitability, then the environment is looking rather good. But this is fairly new territory for carriers, because they have not always acted logically in the past. That is not a sensational statement, that's just a fact,' he said.
'But if one or more carriers revert back to chasing market share, the scenario could well change. And there are some quite aggressive carriers out there. Someone like CSAV, for example, was pretty much gone as a company last year, but it has come back very aggressively and chartered a lot of new tonnage and got into a lot of new trades.'
'In my recollection, carriers have never been good at controlling capacity ' 2009 was an exception forced on the carriers with bankruptcies being a real concern,' Tan said. 'Now that they are profitable, would carriers willingly cede market share to competitors?'
Tan noted carriers earned 'super-normal profits' in the third quarter of 2010. 'So rates will certainly have to come down from current levels as a normal process of the shipping cycle,' he said.