Drewry’s: Container Freight Rates Headed Higher

The recent successful implementation of significant rate restoration initiatives by carriers in the core east-west trade lanes means that most are now operating above break-even.
Carriers took sufficient capacity out in the winter months to ensure that recently re-activated services have not caused too much damage to the supply/demand balance and load factors on the eastbound transpacific remain strong. However, with the worsening situation in Europe, we do not foresee a strong peak season this year and carriers will experience some rate erosion during the summer months. Evergreen’s decision to launch another weekly loop this month is not a positive and the Asia-Europe trade is most at risk because of the need to fill more 12,000+ teu ships every week.
We are forecasting 4.3% global container growth this year and capacity management throughout the second half of 2012 is crucial if carriers are not to undo all of their efforts to force rates back up to profitable levels. The main reason for the recent spot rate successes has been the universal determination of all lines and rates have more than tripled on the Asia-Europe trade since March.
Depending on the overall development of costs, and particularly fuel, we forecast that after total carrier losses of over $6 billion in 2011 and an appalling first quarter this year, carriers could make as much as $1.8 billion profit or a loss of $1.3 billion – which should provide a decent platform for 2013 when demand will improve slightly.
It is a little too early to determine if carrier strategy has truly changed towards profits, but the signs are that they remain determined to keep rates at as high levels as possible. Yield management and the movement of rates to more acceptable levels are key aims for all carriers and if spot rates hold for the rest of the year, carriers will be in a strong position for the re-negotiation of shipper contracts in 2013.
Shippers will pay more for their transportation in 2013, although anecdotally we hear positive feedback about the influence that the Daily Maersk service is having in the Asia-Europe trade on shippers’ supply chains.
“Responsible commercial pricing will eventually help to iron out the huge volatility we have seen since 2008, creating a more stable service platform as carriers will be less likely to pull services quickly when they become unprofitable. The rhetoric coming from the new boss of Maersk in Copenhagen is that the company is concentrating on profit now – this does bode very well for the industry,” Neil Dekker, head of Drewry container research explained.
The industry has started to find a new equilibrium and it needs to settle down and continue to create an environment of stability. Since we do not see significant demand growth in the headhaul east-west trades next year, the industry must refrain from ordering new ships in the next 18 months to enable a return to a more normal supply-demand balance in the medium term.

About the Report
“Container Forecaster 2Q12” is published by Drewry Maritime Research.
Released in June 2012 and is priced at £2775 for a yearly subscription, based on 4 quarterly issues.
The report will be available in pdf format which can be downloaded from the Drewry website www.drewry.co.uk