The Asian economic recovery is helping the intra-Asia trade return to profit.
The Asian economic recovery is helping the intra-Asia trade return to profit. With sub trades such as intra Asia-Australia already in profit, it is estimated that intra-Asia"s container shipping market will be the first to become profitable. But it is also estimated that the wider container shipping market out of Asia remains ?bearish?.
Besides benefits from Asia"s consumption boom, the supply demand balance on intra-Asia trades has been less of a concern according to a report released by Nomura, the Tokyo financial group, at the end of October.
Compared to big vessels on traditional trade routes especially Asia-Europe, ships plying the intra-Asia trades are in the less than 3,000 TEU class. Fortunately, supply for small-vessels has been relatively flat since 2008 with new orders accounting for only14 per cent of the current order book.
Smaller vessel orders also saw the maximum number of delivery delays in the first nine months of the year. While 56 per cent of the small vessel orders were deferred between January and September, orders for 3,000-TEU plus ships were delayed only 39 per cent, said Nomura. This helped intra-Asia trade fare better. Carriers such as Wan Hai with a bigger exposure to intra-Asia trade are benefiting too.
The Asian shipping market, on the other hand, continues to struggle with unsustainable freight rates, excess capacity and a slow paced demand recovery.
The 26 per cent improvement seen in overall freight rates since June is unlikely to bring buoyancy to full year rates, Nomura analysts contend. Rates will again fall in nearly November with the withdrawal of peak season surcharges according to them. For example, US$1,300 per TEU Asia-Europe freight rates will fall $400 at the end of the peak season.
The long-term sustainability of freight rates is also threatened by laid-up capacity, which will re-enter the market once rates are above ?break even levels?.
Rates are expected to rise 13.3 per cent next year, as bunker becomes more expensive. Brent crude oil whose prices serve as a benchmark for most of the global crude oil trade will cost $72 a barrel next year according to Nomura forecasts. But rates are likely to still remain below the breakeven point on most trades except those on intra-Asia routes.
The break even point will only be reached in 2011 when freight rates are forecast to rise 7.5 per cent year on year and turn profitable as demand improves and vessel supply is brought under control.