In its Container Insight Weekly, Drewry estimates that based on a healthy load factor of 90% even the newbuild 19,000 teu ships would operate in the red if filled exclusively with spot cargo, and smaller vessels would of course lose significantly more, given their higher unit costs.
Drewry calculates that all 85 of the 13,000 teu workhorses currently deployed on the Asia – North Europe trade could potentially be losing money on each voyage, even if they are operating at an impossible 100% utilisation level.
Drewry’s assumptions are based on its World Container Index (WCI) spot rate reading of $966 per 40’ as at 16 April – which has no fallen for 11 consecutive weeks to its lowest point since December 2011.
Moreover, given the decline of the rival Shanghai Containerized Freight Index (SCFI) to $399 per teu as of last Friday, the WCI is certain to have fallen further in the interim and reports suggest that rates of $350 per teu or less are being offered in the Asian export market.
The fuel cost part of Drewry’s calculation is based on a level of $319 per ton – an essential part of the equation for carriers endeavouring to reduce operating costs at a faster rate than falling freight rates.
The price of oil and consequentially the cost of bunker fuel has started to inch up in the past week, and this morning Rotterdam-sourced IFO 380 HFO ticked up by another $7 per ton to $324.
Fortunately carriers do not generally have to rely entirely on spot cargo to fill their ships, with – in an ideal scenario – as much cargo as possible coming from their annual contract business, and the necessary evil of spot cargo used for top-up only.
However, as Drewry points out, the carriers “risk the wrath of their BCO customers that have signed contracts at higher rates”.
This will become a big issue if spot rates remain at the current levels for a prolonged period and carriers could come under intense pressure to renegotiate the deals to better reflect the market.
The raft of blanked sailings from Asia announced by carriers over the next few weeks is not a long-term solution to the excess capacity problem, argued Drewry.
It said the tactic would only temporarily lift load factors – which anecdotal reports suggest have plunged to below 70% in the past week.
Pushing through GRIs with carriers scratching around for cargo is a nigh-impossible task and the embarrassing failure to implement, let alone sustain increases in March and April, is testament to this.
“A prolonged spot rate downturn will force carriers to consider the nuclear option of laying up ships,” said Drewry.