SCDigest Editorial Staff

SCDigest Says:

With carriers now increasingly sharing delivery routes and great uncertainty as to where they need to put capacity and containers in the future, it is time for many shippers and importers to rethink their relationships with the carriers. What Do You Say? Click Here to Send Us Your Comments Click Here to See Reader Feedback

The analysts at Drewry Shipping Consultants are predicting a 7% annual rise in container volumes over the next five years, representing a "return to stability" for carriers, but how rates will play out will depend on whether the carriers are able to collectively continue to maintain discipline in adding capacity back into the system.

Neil Dekker, Editor of Container Forecasts for Drewry, said the largest ocean carriers have seen a strong recovery in 2010, but that normal seasonality has been seriously skewed by exceptionally strong re-stocking of inventory during the first half of the year. He also said headhaul container volumes are weakening as the traditional winter slack season approaches and that global consumer patterns remain clouded.

"It is difficult to determine what true consumption patterns are because container volumes in the first half of this year have been very strong mainly due to re-stocking," Dekker told SCDigest.  "At the same time, we have had some real or new demand but again it is difficult to determine this true amount as there have been many shipments in the system which have been delayed due to problems with capacity and container equip during the first half of the year."

As a result of volume recovery in 2010 and little added capacity, ocean rates have risen sharply in most lanes, more than doubling in the core east-west trades to get them almost back to 2008 levels, Dekker says.  However, he says even though spot market freight rates on east-west routes have weakened in recent weeks, he does not expect they will not show further significant declines as carriers react to the decreases by pulling out tonnage.

Dekker believes that in 2011, average east-west freight rates should remain about flat from current levels.

That view differs a bit from that of Philippe Hoehlinger, VP of Risk Management at container leasing company Sea-Axis, who last month told SCDiest that says rates will drop 10% in Q4 of this year and even more in early 2011, when the current overcapacity situation is expected to peak. Later in 2011, he said the supply-demand balance should improve in the carriers' favor, and prices should stabilize. (See Despite Growing Recovery In Container Volumes, Ocean Shipping Capacity Still Growing Faster than Demand.)

Can Carriers Continue Capacity Discipline?

From laying up capacity to "slow steaming," all told the ocean carriers have done a good job managing supply versus demand to their benefit, Dekker says.

"Ocean carriers have stopped focusing on market share; profitability is their new watchword," Dekker says. "Global shippers now need to think beyond the ‘volume is king’ approach and work together with their partners on meaningful forecasts and more reward-based contracts."

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