Drewry Forecast

The Journal of Commerce gives a synopsis of the recent report from Drewry,

giving their forecast of the container industry.

They think that if carriers don't lay up tonnage by the mid of 2012, there will

be severe consequences. I think there is some truth to this, but I also think

the big carriers are going to try and play their hand and force out the smaller ones,

who really should have gone bust in 2009. We shall see

Here's the article from the Journal of Commerce.

Container shipping lines could lose as much as $5.2 billion in 2011 despite a projected growth in global demand of 6.5 percent, according to Drewry’s latest quarterly Container Forecaster.

Drewry based its dismal forecast on carriers’ third-quarter losses and industry fundamentals, which have deteriorated sharply since 2010, when carriers’ earned estimated profits of $20 billion.

Vessel overcapacity, poor headhaul growth on the major east-west routes and the continued fight for market share among the largest carriers caused spot rates to fall by more than 50 percent on the key headhaul routes by the end of 2011.

Even attempts by carriers to cull capacity during November and December did not lift rates by any meaningful margin. Spot rates improved a little as of early January, but this is still likely to be a temporary phenomenon driven by the annual spike before Chinese New Year.

The New Year will be another challenging year for liner operators as delivery of big ships will continue to be a problem and carriers’ future lay-up strategies will dictate if they make money or not. “We believe that at the current burn rate, carriers’ cash reserves will run out during the second half of 2012. If they do not put a substantial amount of tonnage into lay-up by this time, the consequences could be dire,” said Neil Dekker, Drewry’s head of container research.

The industry will continue to change its structure as all stakeholders adapt to the difficult conditions, but Dekker does not foresee any company acquisitions. “Consolidation is more likely to happen through the disappearance of small players,” he said.

Drewry said the current supply/demand fundamentals on the key east-west trades are not strong enough for carriers to push through any sustained revenue increases. Some shipper contracts have been signed on the Asia-Europe trade this year for around $1,100 per 40-foot equivalent container unit including all surcharges, levels that are below break-even.

At the moment, relatively few vessels from suspended services are being laid up or idled, with most being re-chartered or absorbed into other routes. Drewry estimates that idling could reach as much as 8 percent of the global fleet during the second half of 2012, which would be equal to about 1.3 to 1.4 million 20-foot equivalent units.

“Carriers will at some stage in 2012 be forced to idle tonnage, even if the lead players are showing no inclination to do so at the moment,” Dekker said. “This will enable a partial recovery in spot rates during the second half of this year.”

Forecast for 2012

It's time for the predictions for 2012!

I have done fairly well with my forecasts the last few years.

In 2009 I said we would be in a recession until 2011.

Of course, the word "until" is a bit subjective. 2011 is over.

The U.S. appears it is now starting to come out of the recession,
but things in Europe are looking worse.

I predicted oil prices would be between $50-$100 a barrel. That has
proved to be pretty accurate, although I certainly gave myself a wide
variable!

So, for 2012, what lies ahead?

It's really a tough call. The U.S. no longer is the biggest driver
to the world economy. China is slowing down.

Having said this, this is my best guess.

Shipping companies will continue to struggle. Many of the Greek companies
operating bulk ships will go bust. These are the ones who have their stocks
listed in the U.S., so the investors will get burned.

As for the container companies, that's a difficult call. Everyone has
formed their alliances in an effort to reduce costs. But I don't
think they are managing to control the capacity as will be needed, to get
their rate increases to stick. So, I think these VSA's will allow most
of the carriers to survive 2012

However, I believe ZIM and CSAV might be in jeopardy.
It depends if they can get more money from somewhere. And who
knows the answer to that? There is a lot of cash sitting on the sidelines, looking for a decent investment.

I think the price of oil will be between $80 and $130 a barrel.

I predict the Euro will survive, but the U.S. dollar will once again become stronger. Everyone talks about how bad off the Euro is, but I remember when
it and the dollar were on par.

I think the middle class in China and India will continue
to grow, and living conditions there will improve. So, that at least
is some good news for 2012.

Happy New Year!

Fed Ex as "bellweather"

FedEx is considered a good indicator of how the economy is doing. It use
to be just the U.S. economy, but because they have become so big in the
global market, it appears they are also a good indicator for the entire
global economy.

This just reported.

"The U.S. and global economy grew at a slower rate than we anticipated during the quarter," said Chief Financial Officer Alan B. Graf. "While FedEx Ground and FedEx Freight achieved improved operating results despite lower than expected growth, the more rapid decline in demand for FedEx Express services, particularly from Asia, outpaced our ability to reduce operating costs."

Click here for rest of story from Journal of Commerce

Forecast Container Shipping

Sometimes I amaze myself. I am just now catching up on what is going on
in the world of container shipping, and in particular, the forecast
for this year.

This is what I wrote in my blog post of July 23, 2010

Ocean container space is tight coming out of Asia, as the carriers had been smart enough to not add too much capacity. This will last another year, then all the carriers will have short term memory loss, and add too much capacity.

Some things never change.

Like the weather. It's summertime in the U.S., and yet some people are shocked to see the temps in the triple digits

.

And now, this article from the Journal of Commerce today, one year later

Alphaliner says growth through 2012 will become “more alarming” with 2013 orders

Four hundred and forty-eight container ships with a combined capacity of 2.78 million 20-foot equivalent units are scheduled for delivery in 2011 and 2012, adding enormous capacity well ahead of growth in demand, according to market analysts Alphaliner.

“The market fundamentals are looking less favorable compared to last year, as an overhang of surplus capacity will continue to plague the industry,” the container industry analysts said.

Deliveries will total 213 ships of 1.34 million TEUs in 2011, and 235 vessels of 1.44 million TEUs in 2012, equating to annual fleet growth of 8.7 percent in each year, Alphaliner said in a report on ship orders.

“More alarming,” the firm said, is the large capacity scheduled for delivery in 2013, which so far has reached a record high of 1.73 million TEUs compared with the previous record of 1.57 million TEUs delivered in 2008.

The figure could rise even higher in the new few months as some yards continue to offer container building slots for 2013 deliveries.

“Most carriers continue to pile up new vessel orders and the order wave does not appear to be coming to an end any time soon,” according to Alphaliner.

Carriers already are bracing for a weak peak season this year as demand growth has slowed since the third quarter of 2010 while the supply of ships has surged over the same period due to the delivery of new-built vessels and the re-activation of idle tonnage.

Yes, and people are surprised it is 105 degrees today in Kansas.

Once again folks, it's survival of the fittest

Today Drewry Consultants has announced almost the same thing I stated back on March 20th, 2009.

This is what I said

Various CEO's of international container companies keep saying there is a need to "restore market discipline", meaning they need to quit cutting rates.

... the 14 TSA carrier CEOs expressed their intention to avoid any further erosion of existing rate structures that have been undercut by deteriorating demand and bids by carriers to fill gaping capacity.

What these guys don't understand is, you can't restore market discipline by saying "don't do that". You restore market discipline by getting the supply more closely matched with demand.

This is what Drewry says

FAILURE to take the bold steps required to eliminate unwanted containerships will drive some lines out of business.

That is the verdict of Drewry Shipping Consultants in a report that urges ocean carriers to “act now” in order to survive the crisis which has seen freight rates plunge after a collapse of cargo volumes.

Box lines will have to lay up the biggest ships in their fleet and should be prepared to cancel newbuilding orders even if that means forfeiting downpayments.

“Operators who move fastest and are the most radical will be best placed for recovery in the long-term,” Drewry predicts.

Even so “we still expect some major operators to fail this year”, the firm warned after analysing how the industry has reacted to global recession.

What Drewry is forgetting is a lot of the tonnage out there is not owned by the carriers. It is owned by companies whose business is just to charter out ships. For them, something is better than nothing. Container carriers are off-hiring chartered tonnage, quite possibly to see it return and compete with them.

It will come down to survival of the fittest. I still predict 10% of the container carriers in international liner shipping, will go out of business in the next 2 years.

If you are a carrier and you want to survive, start working on your computer systems. Everyone's computer systems are outdated. Don't you folks every buy anything on Amazon?

A good computer system will reduce the cost of producing all that documentation, and will also allow your pricing staff to make intelligent pricing decisions.

You also need to be looking at companies like Fed Ex and UPS as examples of how to run a shipping company, not Maersk or Cosco.