Rising volumes and rates are starting to yield profits for container ship lines, but the industry still faces a vexing problem: what to do with all those ships ordered a few years ago.
Deployment of vessel capacity is growing faster than cargo demand, according to a new report by SeaAxis, the marine container division of Axis Intermodal UK. The gap in vessel supply and demand will complicate carriers’ efforts to recover from a disastrous 2009, the report warns.
“By accelerating the redeployment of the idle fleet and not maintaining pressure on shipyards to delay deliveries, the shipping industry is shooting itself in the foot,” Philippe Hoehlinger, vice president of risk management at SeaAxis, wrote in the firm’s annual SeaAxis Macro report.
Hammered by losses that industry research group AXS Alphaliner estimated at $15 billion in 2009, carriers held down capacity growth by idling ships, delaying deliveries of new tonnage and slowing vessel speeds. Now that the recovering economy is boosting cargo demand, carriers are cautiously reversing those actions to handle rising demand.
“All the tools that have been so creatively found and used in 2009 to improve the overall oversupply situation are now paradoxically slowing down the recovery,” Hoehlinger wrote.
Shipyards’ order books for container ships ordered before the recession represent 31 percent of the existing fleet but should decrease to 23 percent by the end of 2011, the SeaAxis report estimated.
The report forecast that effective capacity, or ships actually in service, will increase 12 percent this year and 12.4 percent in 2011 while global cargo volume rises 9 percent annually.
At the market’s nadir last year, idled container ships exceeded 700 vessels — 12 percent of the existing fleet’s capacity. The percentage of laid-up ships in the global container fleet has fallen to 7 percent during the last three months.
SeaAxis said layups were the main reason effective ship capacity decreased from 11.6 million TEUs in September 2008 at the beginning of the economic crisis to 11.4 million TEUs at the end of March 2010.
The balance of vessel supply and demand will improve this year, “but there will still be a differential of 3 percent between the increase in the ‘effective’ fleet and the increase in cargo trade volumes by the end of 2011.”
Effective capacity was 5 percent higher than demand in 2009 and will be 3.6 higher than demand this year before reaching parity by the end of next year, SeaAxis estimated.
“The underlying fundamentals for container shipping remain largely favorable in the mid-term,” the report said, because of the expansion of global supply chains, the rise in merchandise trade and the emergence of the BRIC countries — Brazil, Russia, India and China — as engines for demand.
Cargo volume and rates are rising. Neptune Orient Lines said volume at its APL unit during 2010’s first four months was up 43 percent from a year earlier. Average revenue per container rose 5 percent to $2,554 per FEU during the four-month period. APL’s average revenue jumped 15 percent in April over the same month a year ago, to $2,669 per FEU, largely because of increased Asia-Europe volume and increased recovery of higher bunker fuel costs.
But the price increases also appear to be leveling off. On a month-to-month basis, APL’s yield edged up just 1.8 percent from the March reporting period while volume grew about 3.7 percent.
Still, carrier revenue will improve further as new trans-Pacific contracts kick in. Most of the contracts took effect this month and include rate increases.
The improvement is a welcome reversal of losses estimated at $15 billion last year for the world’s 23 top liner operators. Carriers lost an average of $1,500 per TEU of vessel capacity, including idle ships, AXS-Alphaliner estimated.
Hoehlinger wrote in the SeaAxis report it was “a miracle that none of the large carriers have gone bankrupt.” But even though carriers are starting to show positive results, he said their profits “remain largely inadequate to cover debt service obligations.”
Contact Joseph Bonney at email@example.com.