Drewry: Most liner carriers to end 2013 in the red
Drewry Maritime is forecasting that the majority of container shipping lines "will finish in the red for last year" and that freight rates remain historically weak.
In a press report announcing availability of its Container Forecaster report
for the fourth quarter of 2013, the London-based consultant and publisher said, "The sale of non-core assets is a distinct strategy by many lines
to retreat to core businesses and release new cashflow, but this should
not detract from the fact that some of their business plans are not
working. In this sense, the advent of the P3 alliance in 2Q14 is a
game-changer for the three biggest lines to obtain more cost savings."
Drewry said freight rates are now largely determined by carrier behavior and not market fundamentals.
Profits have "little to do with carrying more boxes since freight rates remain historically weak. Profitability is driven by cost cutting, which is also bolstered by the continued sale of non-core assets."
It says that despite 10 general rate increase (GRI) attempts last year on the Asia-North Europe trade, average spot rates were still some $450 per 40-foot equivalent unit below where they stood a year ago.
"Ocean carriers managed capacity well in the headhaul east-west trades last year, and in October, operational capacity had increased by only 0.6 percent, year on year. Carriers reported decent industry load factors of around 90 percent throughout the year despite the absence of a significant third-quarter peak season, but freight rates fell drastically on the Asia-Europe trade to well below break-even levels in June and October."
Drewry said, "Many carriers reported carrying more boxes this year, but a third-quarter industry EBIT margin of 0.9 percent (excluding the best performers Maersk and CMA CGM), proves that carriers cannot rely on revenue or better carryings to secure their financial future."
Drewry said little was done in the way of slow steaming in 2013 to save additional money or absorb additional capacity.
"The immediate successes of GRI attempts, such as the mid-December implementation in the Asia-Europe trade, which has pushed spot rates back up to $3,000 per FEU, continues to give false hope to the industry, since the majority of trades remain over-tonnaged. This positive news for carriers is undone by the realization that many 2014 contracts have been signed with core shippers on the Asia-Europe trade at rate levels of between $300 and in some cases up to $700 per FEU below those signed in 2013. Even with the bigger ships now being deployed, carriers will still find it difficult to make a substantial profit."
The Shanghai Shipping Exchange on Friday said its comprehensive index was 1188.44, up 20.91 points from Jan. 10.
With 56 ships of at least 10,000 TEU lined up for 2014 delivery and 52 in 2015, and more orders in the pipeline (another consultant, Alphaliner, projects 58 deliveries in 2014 and 60 ship deliveries in 2015), "the industry has an enormous challenge on its hands to manage such a process of change. Operational alliances and vessel-sharing agreements will increase out of necessity on all trade routes and the day of the independent operator is over," Drewry said.
Neil Dekker, head of container research at Drewry, stated, "The industry’s major players are continuing to adapt to a new era in the container industry characterized by too many ships and cargo volumes on many trade lanes that refuse to live up to previous expectations. Some of their strategies are sound, and we have highlighted for some time that the formation of new operating alliances are essential if the industry is to stabilize. However, if these are more positive developments, there are unfortunately the same old negative trends that refuse to go away, and these ultimately take the gloss off the good things that are being done."