Operation Slow-Go

The announcement from Japanese carrier “K” Line of a $173 million operating loss on container shipping in the December quarter came with the company’s assessment that the outlook for 2012 remains “uncertain.”

The first financial reports from ocean carriers heading into the year provide some pretty clear, if disturbing, view of the direction of shipping operations, however. It’s becoming evident, that is, that the financial prospects for carriers this year will depend on how they don’t put vessel capacity on the water.

That was the clear message behind the spate of rate increases carriers disclosed on a wide range of lanes in the past two weeks, capped by the $775-per-box hike Maersk Line announced on Asia-Europe business effective March 1. For the record, that is about double the most recent spot rate under the SCFI Shanghai Containerized Freight Index.

That was only the most dramatic of the many increases from several carriers across many lanes that are coming as other, equally important, moves emerge more quietly. And those have to do with capacity.

Alphaliner, the industry analysts, reported recently the capacity carriers now have idled because of a supply-demand imbalance amounted to 680,000 20-foot equivalent units in mid-January. That is up from 595,000 TEUs idled at the start of the year. The number of idle vessels has grown from about 100 a year ago to 268.

The average size of idle vessels, Alphaliner said, has grown since June from 1,250 TEUs to 2,500 TEUs. Larger ships are being laid up, in other words, cutting more deeply into longer, larger supply chains.

At the same time, there is growing talk in the industry about the potential for “extra-slow-steaming.” Industry terminology is so fluid it’s unclear whether that would mean super-slow-steaming, super-super-slow-steaming or extra-eco-slow-steaming.

Slow-steaming, under any name, not only appears entrenched in operations, but is exerting a growing influence on waterborne supply chains. Alphaliner estimates the operating tactic of extra-slow-steaming now absorbs some 4.9 percent of the world’s container shipping capacity.

Idling and extra-slow-steaming are only parts of the capacity equation, however.

Ship deliveries are supposed to run well ahead of forecast demand this year. Mediterranean Shipping last month took delivery of the third of five 13,500-TEU vessels it ordered five years ago, in fact. But London-based analysts Clarkson said their tracking of actual deliveries suggests many orders have been pushed back by several months in the past couple of years. It’s unrealistic to imagine that while ships are idled and capacity stretched out on longer voyages that deliveries won’t quietly be extended this year.

The results so far this year are getting positive reviews in investment circles, and carriers are showing some confidence even as they report their ugly results for 2011.

“There has been success in increasing freight rates … and shipping carriers will continue to improve their profitability by increasing rates through service rationalization and taking various measures to reduce costs,” Hanjin Shipping said in disclosing a $487 million loss on container ship operations.
The best hopes, it seems, rest in not sailing.

Paul Page is executive director of The Journal of Commerce. He can be contacted at 202-355-1170, or at ppage@joc.com. Follow Paul Page on Twitter, www.twitter.com/paulpage.

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