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Monday, April 22, 2019

Maritime Logistics Professional

Business as usual for container carriers as 2013 oozes in

Posted to Far East Maritime (by on January 2, 2013

It may be a New Year, but nothing has changed for an industry mired in capacity and plagued by high operating costs.

So, 2013 is here and off we go. No East Coast dockworker strike to put the brakes on the improving port business and no fiscal cliff jumping to snatch money out of US consumer’s pockets.

Yet even as the effects of the champagne and gluehwein wear off, not much has changed. The container shipping industry remains plagued with overcapacity, high fuel prices and not enough demand to keep rates up.

Scrapping has been accelerated and more ships are being idled, and while that may relieve some of the over supply pressure it is unlikely to have much of an effect on the depressed freight rates. That, unfortunately, will depend on the market.

Rates for a TEU from Asia to Europe were around US$1,237 late December, falling from around $2,000 in the first half, according to the Shanghai Shipping Exchange. The lines managed to improve their profitability by hiking rates in the first half, but GRIs failed to stick in the second. A new round of GRIs has been imposed on the Med, Europe and Indian trades as lines try to capitalise on shippers planning to get their orders in before the late Chinese New Year when factories shut down for two weeks.

Another issue the container lines will have to contend with is the size of ships. Most of the newbuildings that will flood into service over the next three years are over 10,000 TEUs. Maersk has 20 18,000 TEU ships coming in, the first of which will be online in a few months, bumping CMA CGM’s 16,000 TEU Marco Polo off its “biggest in the world” perch.

Shipping lines are betting heavily on economies of scale. Container unit costs on the mega ships are apparently 10 percent lower, which is great news even in a weak freight rate environment. Provided you can fill the ships, of course.

But if the current poor market persists, as it gives every indication of doing, the weak consumer demand in Europe and the US will see fewer container exports out of China, freight rates will stay at dismal levels and a mega ship will become more headache-ful than helpful.

But it is not all bad news as we ooze into the New Year. China’s manufacturing improved faster than expected in December and that is always good news for the shipping business. Whether it will translate into greater container numbers remains to be seen.