After seven unsuccessful attempts to raise, and sustain, freight rates since March 2012, rates have actually dropped, and along with those failures, there was no peak season in 2012.
Drewry Maritime Research makes no bones about the reason for the industry’s declining rates and increasing losses. “Weak demand … a fundamental weakness in the market … low volumes … the supply/demand balance tipped in the wrong direction … .” These are just a few of the many ways to describe the obvious, and because the global economic downturn is not a sudden happening, there were many ways the billions in losses could have been reduced over the past four or five years. But ordering “another 40 ships of more than 10,000 TEUs to be delivered this year” certainly wasn’t one of them. What the heck are they using for brains in carrier boardrooms?
Alphaliner’s report in yesterday’s Cargo News revealed that the global idle fleet presently stands at 5% – or 297 ships – totaling 809,000 TEUs. An export rush before the Chinese New Year could possibly keep the idle fleet steady, according to the report, but a continued volume decline will see the idle number rise to one million TEUs in February. And you can take that to the bank.
In another Cargo News article, Standard and Poor’s (S&P) announced that Zim’s is facing stormy waters. The Israeli shipping line’s credit rating is deteriorating further, S&P stated, and they noted that Israel Corp., Zim’s parent, could no longer be relied upon for further bailouts.
S&P warned in its report that Israel Corp’s stable credit profile could be harmed and could come under “negative pressure” if it decides to inject considerable sums into Zim. S&P was firm in its belief that Israel Corp would not serve as Zim’s deep pocket as it did in the debt settlement of 2009 and 2010 when Zim suffered accumulated losses of $ 1.3 billion.
Situations like this fly in the face of Drewry’s questionable forecast of a 4.6% increase in demand this year and a possible “profit near $ 5 billion in 2013”. How is such a positive forecast justified when repeated attempts to cover enormous industry-wide losses with higher freight rates keep falling flat?
With the rapid increase in the numbers of unemployed consumers worldwide, coupled with the inane ordering of more and more “bigger-is-better” 10,000, 12,000 and 16,000 TEU container ships, what kind of a graphic display could lead an analyst to optimism? Forty more leviathans and an “obvious reluctance … to lay up or idle significant storage” will only compound the industry’s problems.
According to carriers, the acknowledged “breakeven” capacity for a container ship is “approximately 80%”. But according to Drewry, the average for most of the second half of 2012 has remained at the 75-to-85 percent range. And isn’t that “approximately 80%”? And doesn’t the second half of 2012 include the non-existent peak season?
How do all these negatives translate into increases in global demand and industry profits in 2013?