The Asia-Europe Capacity Disconnect

The disconnect between carriers’ unwillingness to withdraw Asia-Europe capacity and the need to do so to put a floor under rates and perhaps even raise them, remains as wide as ever.

“Maersk Line’s Michael Blach: “We don't have any plans for idling ships,” tweeted Journal of Commerce Executive Director Paul Page from the National Industrial Transportation League/Intermodal Association of North America convention in Atlanta.

Financial analysts see an increasing need to do just that. This is the email response this morning from Sam Lee, who heads Asia transportation research for Credit Suisse in Hong Kong: “Yes, I think they will need to withdraw capacity now. I am doing a more detail study but prelim result is that rate on AE, Middle East and S. America are not even covering bunker+charter cost. Sentiment for the industry has turned more bearish as 3Q peak season didn’t happen, and the forward rate still points towards a loss-making 1Q, so there should be less incentive to hold on to the ships anymore.”

It’s this dynamic – no withdrawals against non-compensatory rates – that is leading to the most credible consolidation environment since 2005 when Maersk acquired P&O Nedlloyd and Hapag-Lloyd acquired CP Ships. Next year could turn out to be a rough one for shippers, who may be benefiting from low rates but won’t like the chaos that virtually always accompanies major transportation company mergers.

-- Peter Tirschwell is senior vice president of strategy at UBM Global Trade. Contact him at ptirschwell@joc.com, and follow him at twitter.com/PeterTirschwell.

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