Can’t have it both ways

The week’s Top Story
“Drewry: Surging capacity damaging the North-South trades”

“Drewry Maritime says that container lines are ‘getting half of it right’ in its annual container market report. Amidst weak demand and overcapacity exacerbated by new ship deliveries, cost cutting and deployment strategies are helping to somewhat bolster the East-West routes. However, rates on the North-South trades are plummeting on the tonnage glut, according to Drewry’s Annual Container Market Review and Forecast 2013/2014.

“Given that more than 25 ultra large container vessels have been delivered so far in 2013, Drewry said carriers have managed the deployment of tonnage ‘pretty well’ in the main East-West trades. As of October, capacity on the three main East-West routes is up only 3.2 percent year-over-year, although Asia to North Europe spot rates have fallen in 33 of the 39 weeks so far this year.

“‘Good strategies on one side of the equation are being unraveled quickly simply because the carriers cannot have it both ways,’ said Neil Dekker, Drewry’s head of container research. ‘Pouring too much capacity into the system means that at some stage it will overflow and we would argue that this has already happened to some extent.’

“The report forecast global fleet growth at 7.4 percent in 2014, which will continue to challenge the stability of container carriers. Drewry said the industry would save $ 5.5 billion on fuel this year, partly on lower fuel costs, but also due to network changes, slow steaming, and the introduction of more fuel-efficient ships and bunkering in Russia.

“The report asserted that the global cascade of tonnage is hurting the North-South trades – regions where carriers are pinning their future hopes. Rates in the once-robust Asia to East Coast South America trade have dropped 61 percent to $ 780 per-TEU this year. Rates in the Asia to Australia trade have fallen 65 percent to $ 400 per-TEU. Unless they limit capacity growth at the trade level to realistic market levels, container carriers are running the risk of ruining the trade lanes that they see as the future, the report states. Drewry doesn’t expect annual trade growth to rise above 6 percent between now and 2017, and said that shipping lines must find another way to defend the bottom line other than monthly GRI [General Rate Increase] attempts that fail to stick. The report named the formation of collaborations line, the P3 alliance, as one way of stabilizing operational supply, but said much more work is needed.

“‘Although 2013 will turn out to be an OK year for the industry and the main stakeholders should make a small profit, many carriers will still be in the red,’ said Dekker. ‘Liner companies can no longer treat the ULCVs as a secure passport to profitability unless they release the pressure elsewhere.'” –

Greed and stupidity run hand-in-hand.