This week saw Malaysia's largest ship owner MISC's decision to leave the container market after three years of accumulated losses and focus instead on other segments of the market. It's pretty clear by now to all players involved that the next few months will be equally, if not even more difficult, as Eurozone's problems are persisting.
In a latest market insight report, Singapore's Island Shipbrokers' Director of Research, Ms Katharine Cheong Koh said that the near term outlook of the general container shipping segment remains very challenged, with significant downside risks, predominantly characterized by a lack in concerted strict discipline amongst industry players to control fleet supply in the market, which could ultimately lead to a prolonged down cycle with huge disparity between excessive supply and meager demand; especially worrisome on the long east west hauls which desperately needs a strict cut in number of services, idling of vessels, and scrappage.
According to Island Shipbrokers, as it is, box lifts at major US ports, Europe as well as the top rankings within Asia (intra Asia) only managed single digit or low teens in throughput growths for the first 8 to 9 months of this year, together with less than rosy trade statistics recently announced out from China, Japan etc, these undermine a downgrade of our internal demand growth projections for global container shipping to 4.5% to 5.5% for entire 2011; whilst estimated fleet growth could tip 8% to 9% this year. A persistently strict surplus in supply of between 3% and 4% is seemingly imminent, which then bodes ill for a quick recovery in major freight rates even well into 2012.
It went on to mention that some big liner companies which are still the black are still playing outlast, holding back in supply cuts despite hearing freight rates dipping to OPEX or even below BAF for A/E route, plus a total failure for the traditional PSS negotiations. Worse, we have witnessed cut-throat price competition rampant in the long haul markets, with big players pitting to maintain/grow market shares despite the general sector heading seemingly for the biggest doom. Many small companies could soon be squeezed out as a result, or at risk of acquisitions.
On another note, the sudden increase in new building orders (some 2.5 million TEU worth over USD 30 billion in commitments, 70% of order for sizes more than 8,000 TEU on average) recently concluded since June 2010 to the likes of 20 x 18,000 TEU by Maersk, 10 x 14,000 TEU by NOL and another 10 x 13,000-TEU by OOIL certainly look hard for market rationalization going forward, setting up a potential next hurdle for the shipping sector again, by 2013-14 during these deliveries. The landscape for the container shipping sector looks set for a major downward correction in asset pricing, with much activity in the S&P arena likely on distressed sales, whilst freight rates continue to stir a potential bloodbath, amidst expectedly high bunker costs breathing down the necks of all. The overall climate looks seriously depressing, but maybe we can still see a little glimmer in Latin America and Africa, for whatever marginal cargo levels one could pick up.
(Sourced from Hellenic Shipping News Worldwide)
