Container Shipping ‘Lucky to Break Even’ in 2015, Drewry Says

A poisonous combination of overcapacity, weak demand and aggressive industrial pricing is threatening liner transport trade profitability for the remainder of 2015, in response to the Container Forecaster report revealed Tuesday by world transport consultancy Drewry.

Drewry’s new view of the market revises its earlier forecast that carriers would collectively generate earnings of as much as $8 billion in 2015. Drewry now says that its revised view is that carriers “will be lucky to break even this year,” that means some strains shall be again within the purple by year-end. The consultancy added that the one approach to handle that is for carriers to take far more radical motion to handle overcapacity which is now plaguing “virtually all major trade routes”.

Despite first quarter trade working margins of 8%, value financial savings by way of falling oil costs have been handed onto shippers by carriers within the type of a lot decrease freight charges. And going ahead, transport strains will battle to proceed lowering unit prices in keeping with the anticipated erosion in freight charges, given stabilising bunker prices, in response to Drewry.

Drewry estimates that this 12 months common world freight charges will decline at their quickest tempo since 2011, when the autumn in trade unit income was as nice as 10%. The outlook for freight price growth has not been helped by second quarter spot charges within the 4 principal East-West head haul trades falling by 32% year-on-year.

Recent resolution by the Ocean Three strains to take away roughly 4% of commerce capability on the Asia-North Europe commerce ought to assist the carriers’ July and August GRI initiatives to push charges up. But extra decisive motion is required right here and elsewhere since void sailings are solely a really short-term resolution. As many as 129 ships of 8,000 teu and above nonetheless want to seek out houses throughout quite a few trades within the second half of 2015, Drewry says.

Average world head haul utilization fell to 83% through the first quarter of 2015, although this alone mustn’t have precipitated the deterioration in spot charges. However, the perceived weak spot pushed many strains into rate-war mode throughout quite a few key commerce routes. With the exception of the westbound Transatlantic and Asia to Middle East trades, not often have we seen so many main routes performing so poorly all of sudden. Spot freight charges have reached historic lows on the Asia to Europe and Asia to East Coast South America trades, which have been pushed by carriers’ concern of dropping quantity base cargo to opponents in addition to impending new construct deliveries.

Each quarter brings one other 10 to fifteen ULCVs (Ultra Large Container Vessels) into the market and the resultant cascade of tonnage into the Transpacific, Latin American and Asia-Middle East trades is having a real detrimental knock-on impact.

Neil Dekker, Drewry’s director of container transport analysis stated: “There are not enough good homes for ships of over 8,000 teu where they can be placed without doing some damage to the supply/demand balance. Ocean carriers do not want to idle these expensive assets. The orderbook is starting to get out of control, with another 1.14 million teu added since January. Carriers’ emphasis on ordering so many big ships is starting to backfire and virtually all major head haul trades are plagued by overcapacity. We are entering a new era which will be dominated by big ships and all ocean carriers need to be thinking of average head haul trade route fill factors of 80-85% as the norm, rather than 90% or more. They cannot keep adding capacity and expect there to be no substantial impact on unit revenues.”