Analysts: Rates Will Fall Unless New Capacity Is Absorbed

Although the general rate increases of the last two months in the Asia-Europe and trans-Pacific trade lanes are being accepted by shippers, so much additional capacity is due for delivery this year that rates will almost certainly start falling again by the fourth quarter unless carriers start to lay up more of their ships, according to a panel of analysts speaking Wednesday at Containerisation International’s 14th annual Global Liner Shipping conference in London.

“There is too much capacity being integrated in too short a time,” said Lars Jensen, CEO of Seaintel Maritime Analysis. “Global demand has got to grow at 13.5 percent to absorb all this capacity, and that’s not going to happen.”

Global container trade will grow at 7.3 percent this year and 9.1 percent in 2014, according to forecasts by Philippe Hoelinger, a Paris-based macro economist on the panel examining global and regional cargo flows. “By 2014, cargo growth should go back to its 10 percent norm,” he said.

Hoelinger revised his forecast upward because of the improved economic forecast released Tuesday by the International Monetary Fund. But the forecast is still not strong enough to absorb all the capacity coming into the market. Slow-steaming can use up some of the new capacity, but not all.

In addition, the consolidation of services announced this year by various carriers and alliances including Mediterranean Shipping Co. and CMA CGM and by the Grand Alliance and the New World Alliance “don’t absorb capacity, but do offer more services to shippers,” Jensen said.

Most of the new capacity due for delivery this year is in ships larger than 10,000 20-foot equivalent units, which will mostly be deployed in the Asia-Europe trade. Carriers will cascade smaller ships in that trade onto other trades, including the trans-Pacific and north-south routes. That, in turn, could undermine rate increases in those lanes. “Carriers need to be more disciplined in handling capacity, but that is unlikely,” Jensen said.

“Very shortly, carriers will have to lay up 1 million 20-foot equivalent units or more, said Matthew Beddow, managing editor of Containerisation International. “Well see an increasing amount of capacity laid up.”

Recent freight rate increases in the major east-west trades will hold up through the third quarter of this year because vessel capacity utilization levels will stay fairly high, although they will trend downward from quarter-to-quarter.

Beddow estimated capacity utilization levels in the eastbound trans-Pacific trade in the first quarter of this year to be 82 percent; in the second, 83 percent; in the third quarter, 85 percent; and sliding to 76 percent in the fourth quarter. “That’s the probably turning point,” he said of the fourth quarter.

Similar declines in utilization rates will occur in the Asia-Europe and Asia-Mediterranean trades, with turning points occurring in the fourth quarter, he said. “By the end of the year, carriers will be saying, What the hell do we do now?’ ” Beddow said.

Contact Peter T. Leach at pleach@joc.com. Follow him on Twitter @petertleach.