Trans-Pacific Lane Faces Brunt of Rate Fall, Analyst Says

The trans-Pacific and Asia-Middle East trade lanes are most likely to bear the brunt of rate plummeting, as deliveries of ultra-large container ships deliveries peak in 2012 and 2013, according to one analyst.

The delivery of large numbers of ULCS this year is the prime reason for the collapse of freight rates on the Asia-Europe lane, where many lines are now operating below Ebitda, according to Macquarie Capital Securities’ latest Vital Signs report.

But with the order book of vessels over 8,000 20-foot equivalent unit capacity or bigger equal to 87 percent of the current fleet, the impact will be felt across the container trades.

“It is not at all clear how vessels will cascade off the Asia-Europe route as they are replaced with ULCSs,” said Janet Lewis, regional head of industrials and shipping research in Asia at MCS. “The likely trade lanes to feel the impact are trans-Pacific and Asia-Middle East. This in turn could cascade vessels onto intra-Asia and other routes typically serviced by smaller vessels.”

MCS also warned that the situation on Asia-Europe could further deteriorate for carriers. Rates had collapsed this year as ULCSs entered the fleet despite double-digit volume growth. But Lewis said that with the European Central Bank now suggesting that a mild recession was looming, “we believe that there could be a sharp slowdown in trade volumes into Europe, which would exacerbate any attempt at rate restoration”.

Industry leader Maersk has talked openly about the enhanced profitability on Asia-Europe that could be gained from consolidation, while rivals accuse the line of starting a price war to force smaller carriers of the lane. Lewis said that lines based in Asia, which were mostly better financed than European counterparts, could in fact benefit most from consolidation.

“Most are publicly listed and have easy access to capital markets, though some have debt-equity levels above 100 percent,” she added. “They typically have not taken the lead in aggressive rate wars.
“We believe that China COSCO's liner business, Evergreen, NOL's APL lines, CSCL and Orient Overseas are likely to be both winners and survivors.”

-- Contact Mike King at michael@borderline.eu.com