CONTAINER MARKET UPDATE, VERY GOOD

Freight Investor Services


LEADING THE WAY IN FREIGHT AND COMMODITY DERIVATIVES




Container Market Update - September 11, 2015
Rates on the Asia-Europe trade fell 23% this week ($175) to $588 TEU as the latest September 1st GRI failed to take hold, whilst those to the USWC remained relatively unchanged, increasing $5 to $1,461 FEU.

This week saw Maersk present its latest capital markets day. Of note the Danish carrier indicated that the current weakness in the market is very close to that seen in the 2009 crisis.

As a result Maersk Line now expects an increase in global demand for the year of 2-4 percent, down from the 3-5 percent previously expected, again highlighting the unexpected weak demand growth witnessed so far this year.

In turn this market weakness has ensured that currently on the Asia-North Europe trade rates are 44% lower than the corresponding period a year earlier.

More worryingly for carriers it’s clear to see from the longer term trends that rate deflation shows no sign of relenting on either the Asia-North Europe or Asia-USWC trades, a risk that Maersk rightly highlighted on its capital markets day.

This downward pressure continues to place pressure on carriers to reduce unit costs through the increasing of average vessel sizes and lower unit costs. This week Cosco confirmed that it has signed contracts for an additional 11 19,000-20,000 TEU vessels due to be delivered in 2018.

The company believes that the latest orders will help to improve its fleet profile and progressively increase its shipping capacity. The bigger questions remains, will this come at the expense of lower freight rates as carriers continue in their quest to maintain high vessel utilisations?

This viscous downward cycle does not look to be abating any time soon, whilst the two most profitable carriers in terms of average EBIT, namely Maersk Line and CMA CGM, continue to be the envy of the market with superior average vessel size.

Competing carriers are therefore likely to continue with their seemingly relentless upscaling plans, whilst those with weaker financial statements will, in the long run, find it difficult to fund this addiction and may face no other choice than to pull out the Asia-Europe trade or face self-destruction.