Container lines will struggle to maintain recent freight rates gains after the Chinese Lunar New Year because the industry hasn’t done enough to reduce excess capacity, said Janet Lewis, head of Asia shipping research for Macquarie Capital Securities.
Carriers have pushed through rate increases since mid-December in the approach to factory shutdowns in China for Lunar New Year. But Lewis said most were still in “money losing territory” and, with the idle fleet still only totaling less than 4 percent of global container ship capacity, excess capacity remained.
“The liners have still not been taking out capacity at a rate needed to support further rate increases – or even ensure they can maintain rates post-Lunar New Year,” she said in the latest Macquarie Asia Shipping Pulse report.
Lewis said the idle fleet expanded from 3.6 percent to 3.9 percent at the beginning of the year, falling far short of the 8 percent level that she believes is needed to spur a rate recovery.
“If anything we believe the recent realignment of the industry into new alliances will forestall rather than promote capacity withdrawals," Lewis said.
Chinese New Year officially starts on Jan. 23, but many factories are set to close early this week. Paul Tsui, chairman of the Hong Kong Association of Freight Forwarding and Logistics, said weak demand could see closures also last long than normal, perhaps into “early February”, which could further highlight the mismatch between demand and supply in container markets.
Previous extended periods of low rates such as in 2009 have prompted delays in the delivery of new capacity. However, it is unlikely that lines will adopt the strategy this year, said Lewis.
“Carriers need to take delivery of the [ultra large container ships] they have ordered in order to reduce their costs on the Asia-Europe route, where the larger vessels offer significantly lower costs per [20-foot equivalent unit], especially for fuel,” she said.
Lewis said a few “youthful Panamax container ships" have been scrapped, but the majority of discarded vessels were older, so that leaves idling the only solution to the industry's overcapacity problem.
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