Home' Ships and Shipping : June 2011 Contents Container rates have been sliding on
all the major trading lanes since July
2010, with the exception of a small
hiccough round the turn of the year, as
liner companies tried to push for
implementation of general rates
increases in a weakening market.
The anticipated strong volume rebound
following the Chinese Lunar New Year did
not materialise, and that resulted in
continued descending rates on most trading
lanes. Looking at transport data from the
ports of Los Angeles (LA) and Long Beach as
representative for the trans-Pacific trade and
data from ELAA focusing on Asia-Europe,
demand appears to be solid.
Towards the end of March, spot freight
rates on the Shanghai-Europe trades
dropped below US$1,000 per TEU for the
first time since March 2009. Lower
volumes than expected for too many ships
have triggered fierce competition --
sending rates down rapidly. But a
stabilisation of freight rates may be just
around the corner as the rate development
was flat on April 1, bringing weekly cuts
since January 1 to a halt. But any
significant rebound to last year's level is
not expected to happen. As compared to
last year, rates are 48 percent lower.
The total inbound containers handled
by the ports of Los Angeles and Long Beach
grew by 16 percent year-on-year in January
and nine percent in February. The
corresponding figures from ELAA on the
Asia-Europe trades display a solid flow of
containers bound for Europe in January
with a growth rate of 16 percent as
compared to the same period last year
On the trans-Pacific trade, lane spot
rates rose by 1.4 percent to US$1,631 per
FEU, this is 20 percent lower as compared
to the same period last year. Whether this
vital corner-turn and increase is an
indication of rates bottoming out cannot
be said with certainty.
An indicator for trans-Pacific container
demand is US consumer confidence, as
economic confidence is likely to impact
spending. The index saw a sharp decline in
March -- signalling that the US economic
situation is still not firmly back on track.
While the present index rose slightly, the
near future expectation index fell
significantly. The index now stands at 63.4
(1985=100), down from 72.0 in February.
Oversupply in the main routes is the
reason behind the weak freight rates. The
idle fleet of container ships now stands at
84 vessels, with a total cargo capacity of
just 185,000TEU, the lowest level since
November 2008. At the peak in January
2010, 1.5 million TEU were idle.
The combination of 136 new build
vessels with an average cargo capacity of
6,357TEU delivered since July 2010 adding
to some 150,000TEU that have been
re-activated -- the active fleet has grown by
one million TEU in the past nine months.
The potential of slow steaming has been
almost fully utilised. This leaves only little
upside left for carriers to deploy that tool to
a larger extent in the search for a better
balance between demand and supply.
The active fleet has grown by 1.5
percent so far in 2011, caused by deliveries
of 35 newbuilt vessels with a cargo capacity
of 222,498TEU, offset by just eight vessels
with a combined capacity of less than
8,000TEU being demolished.
BIMCO forecasts inflow of new
container tonnage in 2011 to be less than
in 2010, expected to hit 1.2 million TEU.
As demolition is expected to be
insignificant at just 40,000TEU, the fleet is
forecast to grow by 8.2 percent in 2011.
As the orderbook-to-fleet ratio has gone
back to a "normal" level, new contracts are
being signed at increasing pace. Container
ships represent the most in-demand ship
type at the yards in 2011. During April, the
total 2011 newbuilding contracts are set to
top the total 2010 newbuilding contract
level of 655,000TEU. So far, contracts for
ships with a total capacity of 485,000TEU
have been inked in 2011.
Two-thirds of the total contracts for
new buildings placed since January 1 are to
be delivered in 2013. Expected inflow of
new tonnage in 2013 has risen
significantly since the last update two
months ago, hiking expected supply to
almost one million TEU from the previous
level of 700,000TEU.
The most significant event was without
doubt the long awaited order placed by
Maersk at Daewoo in February. The order
could end up being the largest order ever if
the options are called, seen in the light that
the order includes ten + ten + ten
ultra-large container ships with a cargo
capacity of at least 18,330TEU each. Not
surprisingly, these ships are set to deliver
unit costs 26 percent lower than average on
the Asia-Europe trade once delivered in
2013-2014. Perhaps spurred by that move,
other carriers have clearly seen this
economy of scale scenario and have
initiated upgrading of ships on order.
Severe overcapacity is poison to any
freight market, as freight rates continue to
decline even though volumes are growing
fast but not enough. Cascading remains a
part of the game. It gives little comfort that
freight rates on minor trades, for example
on intra-Asian routes, have recently gone
up by ten to 20 percent.
On the supply side, ten ships of
10,000+TEU vessels have been delivered
into the Asia-Europe trade during 2011.
Taking slippage into account, BIMCO
foresees another 34 ULCS's could be
launched during 2011.
BIMCO expects that we might go all the
way into the peak-season around the third
quarter before sustainable spot rate levels
are back on main trading lanes from Asia to
Europe and US West Coast.
To restore freight rates significantly over
the coming quarter, idling of vessels ought
to be considered an option. That is,
however, not expected to happen and that
could jeopardize peak-season earnings even
if solid consumer confidence is restored
and the high unemployment figures start
to come down.
European and US consumers still
hesitate to go on buying sprees at the mall,
but such behaviour would push demand
upwards. Without consumer confidence
and increased spending, the recovery will
stay fragile. Latest data from the conference
board on US consumer confidence tells a
story of rising inflation and souring income
expectations, which in tandem with
downbeat confidence in the labour market,
represents a rather bleak outlook for the
BIMCO (mid-April, 2011)
June 2011 SHIPS AND SHIPPING
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