Container shipping lines could lose as much as $5.2 billion in 2011 despite a projected growth in global demand of 6.5 percent, according to Drewry’s latest quarterly Container Forecaster.
Drewry based its dismal forecast on carriers’ third-quarter losses and industry fundamentals, which have deteriorated sharply since 2010, when carriers’ earned estimated profits of $20 billion.
Vessel overcapacity, poor headhaul growth on the major east-west routes and the continued fight for market share among the largest carriers caused spot rates to fall by more than 50 percent on the key headhaul routes by the end of 2011.
Even attempts by carriers to cull capacity during November and December did not lift rates by any meaningful margin. Spot rates improved a little as of early January, but this is still likely to be a temporary phenomenon driven by the annual spike before Chinese New Year.
The New Year will be another challenging year for liner operators as delivery of big ships will continue to be a problem and carriers’ future lay-up strategies will dictate if they make money or not. “We believe that at the current burn rate, carriers’ cash reserves will run out during the second half of 2012. If they do not put a substantial amount of tonnage into lay-up by this time, the consequences could be dire,” said Neil Dekker, Drewry’s head of container research.
The industry will continue to change its structure as all stakeholders adapt to the difficult conditions, but Dekker does not foresee any company acquisitions. “Consolidation is more likely to happen through the disappearance of small players,” he said.
Drewry said the current supply/demand fundamentals on the key east-west trades are not strong enough for carriers to push through any sustained revenue increases. Some shipper contracts have been signed on the Asia-Europe trade this year for around $1,100 per 40-foot equivalent container unit including all surcharges, levels that are below break-even.
At the moment, relatively few vessels from suspended services are being laid up or idled, with most being re-chartered or absorbed into other routes. Drewry estimates that idling could reach as much as 8 percent of the global fleet during the second half of 2012, which would be equal to about 1.3 to 1.4 million 20-foot equivalent units.
“Carriers will at some stage in 2012 be forced to idle tonnage, even if the lead players are showing no inclination to do so at the moment,” Dekker said. “This will enable a partial recovery in spot rates during the second half of this year.”