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Mega ship global cascade is damaging north-south trade, says Drewry

4/7/2014 8:49:21 AM

THE container shipping industry is stuck in a "vicious cycle", according to London's Drewry Maritime Research as freight rates remain volatile, and although the new breed of super-sized ships may produce lower slot costs, supply and demand dynamics are still out of kilter.

The conclusions drawn in its first quarter Container Forecaster report highlights that the industry remains in an extended down cycle. This is being accentuated and extended by the constant delivery of new ships.

The global cascade is now hurting the balance of the north/south trades.

"Some of these trade routes have also not lived up to expectations in terms of cargo flows and the sharp influx of many new ships of at least 8,000 TEU has resulted in significant declines in spot freight rates, particularly on the Asia to East Coast South America trade.

"On the one hand, bigger ships may be delivering carriers the lower unit costs carriers seek, but the supply/demand imbalance coupled with the desire by most operators to protect their market share is a toxic mix for overall profitability.

"This is why all focus is now on reducing costs and Maersk Line remains the best in class," it said.

It forecasts 5.7 per cent global supply growth for 2014, followed by 6.7 per cent next year, with the emphasis on the delivery of 115 more ultra large container vessels (ULCV) and a large number of ships in the 8,000-10,000 TEU category.

For this year it anticipates global demand growth of four per cent, "but we do not see any real opportunity for the industry to recover and draw breath until 2016, and this is still dependent on what happens with the orderbook", the analysts concluded.

"Although scrapping rates are at record levels, the delivery profile in the next 24 months will continue to cause damage and carriers will have little if any long-term success with their constant general rate increase initiatives.

"On the contracting side, we also hear anecdotally that many contracts in the core east-west trades have been signed at the same level as in 2013 or in many cases, significantly lower," said Drewry analysts.

Said container research chief Neil Dekker: "Two major fights will continue for the carriers this year - to win contract and spot business. The larger battle will be waged in the spot market arena, which suggests that rate volatility will continue for the time being."


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