Retailers wary, but air cargo data shows signs of market strengthening
While major companies have recently signalled a cut in orders for the second half of ...
According to analysis in Drewry’s Container Insight Weekly, ocean carriers need this year’s peak season to “exceed expectations” for load factors to support general rate increases (GRIs) and the good start to 2015 made in Q1.
However, the transport consultant also noted that a better-than-expected supply-demand ratio would need to be achieved against a backdrop of some 200,000 teu of new capacity due to be delivered in July alone – including eight ultra-large container vessels (ULCVs) of 10,000 teu or more.
Moreover, Drewry added, by almost solely focusing on cost reduction, instead of making serious attempts at revenue protection, carriers have exposed themselves to the “whims of the energy market” and factors largely outside of their control.
After a first quarter which, Drewry said, was “the most profitable for the container industry in four years” and built on the foundation of an average 11% reduction in unit costs, the recovery has not continued into the second period, due to weak demand and a vicious rate war.
But one major factor in the downward drive of unit costs has worked against carriers in the second quarter: fuel prices have crept up and bunker prices have increased by around 15%.
Thus, the toxic combination of plummeting spot rates – which have fallen to all-time lows on the Asia-North Europe trade and are now under $300 per teu – and fuel prices that have inched back up, have derailed the profitable aspirations of many of the top-20 carriers.
Indeed, based on current trading, several of the container lines marginally profitable in the first quarter must now be operating heavily in the red, and unless there is a big improvement in the fundamentals within the next few weeks, half-year results could make grim reading.
It follows that during the next month carriers will be using all of the tools in their box to firstly reverse the tide of freight rate erosion, and secondly to push freight rates back up to sustainable levels.
Notwithstanding that Asia-North Europe June GRIs were an abysmal failure, carriers have begun another push for substantial rate increases from 1 July, at the traditional start of the peak season, and have already laid the foundations by announcing a number of blanked sailings in June, ahead of the increased cargo flows.
The seasonality of global container traffic is evidenced by a graph provided by Drewry Maritime Research, which shows that since 2008 average third-quarter volumes have exceeded 42m teu, compared with just over 40m teu in the previous quarter and around 38m teu in the first three months.
Nevertheless, of concern for the global carriers is that many tradelanes are already operating under the pressure of excess capacity and the impact of cascaded tonnage, even before the armada of new tonnage is received.
And in a number of cases, the ships now being deployed are inappropriate: too big and too soon for the routes concerned.
However, container lines are serial optimists by nature, and – although no doubt currently under some considerable pressure from their investors – can point to last year’s strong peak season, that proved to be not only bigger, but also to last longer than had been predicted.