Thursday, December 19, 2013

OCEAN SHIPPING OVERCAPACITY

Carriers made the overcapacity problem that scares them. 

From American Shippper--
Drewry says carriers 'spooked' by overcapacity
PREMIUM
Thursday, December 19, 2013
In a new analysis, Drewry Supply Chain Advisors has found that "carriers continue to be spooked by the specter of imminent big ship deliveries and so are fighting to hold onto market share.
"This market behavior will put further pressure on freight rates through 2014."
It added that the issue really comes down to a lack of demand and an overabundance of supply.
Another container shipping analyst, Alphaliner, noted in the November 26 issue of its weekly newsletter that the three largest container carriers — Maersk, MSC and CMA CGM — have on order capacity equal to 15.6 percent of their current combined fleet; the next 18 largest carriers have orders equal to 19.8 percent of their existing fleet.
"Despite the challenge they face, the second-tier carriers continue to have a strong appetite for new capacity in their bid to lower operating costs to match the scale economies enjoyed by the largest carriers, and they continue to forge new capacity alliances in this respect," Alphaliner wrote.
Drewry said, "At a trade-route level, carriers have been relatively successful in matching supply with traffic growth, helped by some improvement in overall demand levels. However, they have generally failed to turn this advantage into stronger pricing."
As a result, Drewry said, "there is an increasing disconnect between market fundamentals and freight rates. Despite respectable load factors, carriers are struggling to achieve sustainable rate rises on the spot market and this is strengthening cargo owners’ hand in contract rate negotiations."
Drewry's own Global Freight Index, a weighted average across all main trades excluding Intra-Asia, recovered in November, following two consecutive months of decline. It was up 10 percent over October to $1,957 per 40 foot container.
It attributed that increase to enforcement of general rate increases on several Asia-origin trades, but said "how sustainable these increases prove to be remains open to question with peak season now fully concluded."