Ocean Carriers Must Cut More

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Thursday, 16 April 2009

Despite the actions most container lines have taken to cut their vessel overcapacity, they are not doing enough to make a difference says Drewry Shipping Consultants in a new report. The report, “Capacity Management - surviving the container crisis,” says that while carriers have cut capacity by 15 to 20 percent on the trades between Asia Europe and the Mediterranean, it is has not been enough to arrest the very sharp decline in freight rates.
"The collapse of both demand and freight rates has put most trades into big loss-making territory and, in extreme cases (Asia-North Europe certainly being one) has meant that much of the cargo has been making a negative contribution to fixed service costs,” said Neil Dekker, the author of the report.
“But carriers are still desperate to hold on to hard won market share, even when every extra container carried worsens the profit and loss account,” Dekker said.
The report says container lines need to cancel more ships, scrap more older ships and lay up more newer ships.
Unlike in the bulk sector, few liner companies are canceling new ship orders because they seem reluctant to forfeit large initial down payments on their orders made in 2007, and shipyards are “playing hardball,” as the report puts it.
While scrapping has increased significantly since the fourth quarter of 2008, it will not alter the fleet enough to make a real difference and carriers will not start sending ships younger than 20 years to the scrap yards.
Drewry said it has identified a total of 48 vessels (with capacity of 249,000 TEUs) or approximately 3.5 percent of total available capacity on the Asia-Europe trades that have been laid up, mainly in Asian ports. But it says many vessels have simply been cascaded elsewhere and in a number of cases two services have been amalgamated into one with resultant tonnage.
“This suggests that carriers are still reluctant to lay vessels up despite the desperate trading conditions and that other means of capacity management, though less radical, are more prevalent,” the report says. “So far, no carrier has been bold enough to mothball a 10,000+ TEU newbuild.”
Source: Journal of Commerce