Another Challenging Year in Global Shipping: Hamburg Sud

Following the powerful recovery of the world economy in 2010, the reporting year saw global growth continuing with slightly lower dynamics. Shipping reaped the benefit in the shape of rising volumes. However, the downward pressure on revenue as a result of increasing overcapacity and a significant rise in costs, especially of fuel, posed problems for ship operators.

The year 2011 was marked by the debt crisis in Europe, the weakness of the U.S. economy, various natural disasters in the Pacific region, and political upheavals in North Africa. Nonetheless, global economic output (GDP) grew by some 4 per cent (2010: + 5 per cent).
Against this backdrop, container shipments worldwide rose by approximately 8 per cent, to some  150 million TEU. While the major East-West trade lanes, especially from Asia, showed below-average development, shipments on Intra-Asia and a number of North-South routes posted double-digit growth rates. 

Driven by an influx of new buildings and minimal scrappings, global slot capacity increased by roughly 8 per cent. Making themselves felt here were the adjustments with which many ship owners had attempted to reduce the inflow of capacity during the global economic and financial crisis of 2008-2009.

The overcapacity building up since mid-2008 and only slackening for a brief period in the first half of 2010 exerted strong downward pressure on freight rates in the past year. Between Asia and Northern Europe, spot rates at times plummeted by more than 60 per cent, compared with the highs of 2010. Most carriers were unable to push through peak season charges, or did so for only an unusually short time. The trade lanes from Asia to South America and Australia / New Zealand were also seriously impacted with freight rates here falling by up to 50 per cent compared with the peak values of 2010. 

Particularly high influxes of large ships with a slot capacity of more than 10,000 TEU were recorded. These vessels are deployed almost exclusively on the routes between Asia and Europe, displacing mid-sized tonnage, which then migrates to the North-South trade lanes – such as from and to South America – and there contributes to overcapacity and downward pressure on revenue.

At the same time, shipping had to contend with significant increases in fuel costs in 2011. The price of a ton of heavy diesel in Rotterdam, the world’s largest bunker market, was still below 500 U.S. dollars at the start of the year. By the end of the first quarter, it climbed to, and remained at, a very high level, ranging between 600 and 675 U.S. dollars per ton, until the end of 2011. In view of the high pressure on revenue, the additional costs could effectively not be passed on to customers by way of bunker surcharges.

These developments ensured that many carriers were back to posting losses following the recovery in 2010. Industry experts estimate that the liner operators overall had to accept a loss of some $5 billion to $6 billion in 2011, after profits of some $14 billion in the previous year.
Like container liner shipping, the bulk shipping sector also suffered from overcapacity last year. While spot rates for a Panamax bulker in 2010 stood at between 20,000 and 35,000 USD/day, this value fell to just about 10,000 USD/day in part at the beginning of 2011 and has remained flat at a low level ever since. At the present level of spot rates, cost-covering employment of bulkers as well as of product tankers is hardly possible.

Only very isolated positive signals can be detected for 2012. Whether a sustainable turnaround in the fortunes of container liner shipping will come about in the current year, however, cannot yet be said with any certainty. 

At present, the carriers’ global order book amounts to only about 26 per cent of the tonnage in operation; at the end of 2008, it was more than 60 per cent. Additionally, it can be observed that carriers are proceeding to abandon uneconomic routes and idling capacity. The share of laid-up tonnage has therefore been rising constantly for months. Industry watchers consider it possible that six to seven per cent of the global container ship fleet will be laid up toward the end of the year. Given continued high fuel costs, expectations in the medium term are for high-consumption older tonnage to be scrapped earlier than has hitherto been customary. Should liner shipping companies generally have their ships sail even more slowly (“super-slow steaming”), this would likewise contribute to a reduction in overcapacity.

Even with a moderately positive development of the world economy and world trade, however, it will still be one or two years before global cargo volume and slot capacity regain equilibrium, a pre-condition being the absence of further sizeable new orders.

It remains to be seen whether the recovery of freight rates noted in a number of trades since late 2011 will be lasting, or whether drops will recur in the course of 2012, especially with the end of seasonal trade on the Asia routes.

A low rate level continues to be expected in the bulk shipping sector, as the yards’ order books are well filled and, thus, overcapacity is to be reckoned with in the foreseeable future. Nor is any fundamental recovery in charter rates and earnings in sight from the product tanker sector in the current year.