Shipping
DREWRY PREDICTS GRIM 2016 FOR CONTAINERIZED SHIPPING
January 11, 2016

A widening trade imbalance and a surplus of capacity mean that there will be more losses across the containerized shipping industry this year, according to maritime consultancy Drewry’s latest Container Forecaster report.

 

According to Drewry, freight rates for global container shipping dropped as much as 9% in 2015, and the forecast is that carrier unit revenues will continue to decline in 2016, but at a slightly lower rate.

 

Drewry pointed to the “new and worrying trend” that ocean carriers are no longer able to cut their costs faster than the prevailing declines in freight rates.

 

Costs for the position of empty containers and vessel lay-ups are expected to increase because Drewry believes that oil prices are not going to drop much further. For example, it will cost a minimum of US$450,000 to reactivate a 10,000 TEU vessel which has been laid up in Asia for more than three months. The result, according to Drewry, is that industry losses will widen to over US$5 billion in 2016.

 

The idle fleet towards the end of 2015 accounted for approximately 1 million TEUs, almost 5% of the global fleet. Drewry said that lines will have to remove more vessels and restructure more trade lanes with new operational agreements, because large vessels do not guarantee decent profits. Even if Asia-North Europe contract rates were US$900 per FEU, the carriers would incur a loss of US$1.4 billion for the trade lane.

 

“Comparisons are being made to 2009 when approximately 1.3 million TEU was removed from a considerably smaller fleet,” said Neil Dekker, director of container research at Drewry. “The mass scale lay-ups were triggered by the fact that lines ran out of cash. The industry is not there yet as some lines are still making a profit and the very low fuel prices are propping them up. But a further two or three quarters of declining financial profitability may trigger a notable rise in the idle fleet as we enter the second half of 2016.”

 

Another reason for the extremely low freight rates over the past year, according to Drewry, is that the carriers are competing for market share and positioning themselves for the potential shift of cargo from the US West Coast to the East Coast after the expansion of the Panama Canal is completed by May 2016.

 

Even though spot rates appear to have rebounded so far in 2016, Drewry said it believes that the improvement will be “short-lived.”