It’s survival of the fittest for carriers in 2012

January 8, 2012, 7:09 pm 

Amid fears over the strength of global demand and a potential rates war, and with more big containerships due for delivery, shipping lines’ lay-up strategies will dictate if they make money or not this year, claims one analyst.

According to Drewry’s latest quarterly Container Forecaster, spot rates have improved a little, but this is likely to be a temporary phenomenon, driven by the annual spike before the Chinese New Year holiday. 

Drewry said: "The biggest industry driver now is to place the largest ships in every major trade to ensure that carriers or alliances remain competitive on slot costs." 

The analyst said this had caused a major shift in the network configuration for the Asia-Europe trade, whereby carriers had clubbed together to share costs and ships.

With three major groupings in place, "the remaining small players with sub-8,000teu ships will find it extremely difficult to survive in this intense environment".

The report says: "The global fleet above 8,000teu will grow by 25% in 2012 and this will be a severe challenge for the industry to absorb, given that we foresee decent demand growth only in the emerging markets of Latin America, Indian Subcontinent, Africa and intra-Asia, where sub-8,000 teu ships operate. Overall global demand growth for 2012 is forecasted at 5.4%. 

"The current supply/demand fundamentals on the key east-west trades are not strong enough for carriers to push through any sustained revenue increases, and we already know that some shipper contracts have been signed on the Asia-Europe trade this year for around $1,100 per 40ft all in – levels that are below break-even." 

Neil Dekker, Drewry’s head of container research, said, "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." 

He estimated that idling could reach as much as 8% of the global fleet during the second half – equal to 1.3-1.4 million teu. 

"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," he said.

-IFW