Capacity, Next Year

Are shippers staring at the possibility of significant capacity being laid up by container lines and non-operating shipowners next year? Could the industry be heading toward further consolidation, not just minor carriers exiting the trans-Pacific, but established names merging to form new and larger entities better able to compete with the “big boys?”

With rates taking a beating in the major east-west trade lanes, and industry losses almost certain to be in the multibillion-dollar range this year, these questions are emerging as 2011 begins its final chapter.

Setting up the dynamic is a growing gulf between the two main east-west trades, ultimately supporting the idea that change may be coming. Although capacity has come out of the trans-Pacific, in the form of four smaller carriers — CSAV, The Containership Company, Horizon Lines and Grand China — leaving the trade and six established carrier strings being withdrawn, no similar development has occurred in Asia-Europe, where “carriers are locked in a destructive price war and where capacity withdrawals are limited to smaller-scale loops,” research analyst Alphaliner said last week.

As Martin Dixon, business development manager at Drewry Supply Chain Advisors (and a scheduled speaker at the TPM Conference in Long Beach next March), said last week, “The characteristics of the trans-Pacific and Asia-Europe trades are diverging. The removal of capacity from the former is proving sufficient to put a brake on further rate erosion. However, the absence of any such action on the Asia-Europe trade means that rates have further to fall.”

There is disagreement on whether the Asia-Europe trade will see a large-scale capacity pullback next year. If not, and if rates fall further, the consolidation scenario gains currency. Some believe a pullback of significant scale is inevitable — in general, not necessarily in Asia-Europe — given the losses lines are seeing. Others aren’t so sure.

“With the rates at the level they are today, they are not sustainable, so at some stage there needs to be some rebalancing of supply and demand, and that should come after Chinese New Year,” Damco CEO Rolf Habben-Jansen said in an interview last week.