7% annual rise in container volumes are expected over the next five years, representing a "return to stability" for carriers.
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.
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."
Will carriers be able to maintain their capacity discipline?
"I would like to think so but this is a new strategy for most carriers and it remains to be seen if all carriers will behave in this new logical manner," Dekker tell us. " I don't think anyone can accurately predict this. What is happening on the new [ship] build front for the future will also be an issue," though he says that since funding is still difficult to acquire from banks, "it should mean that the new build order book never gets out of control as it did in 2007-08."
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, Dekker says.
"From a shipper view, the question is how do they can marry up future cargo volumes with anticipated supply?" Dekker told SCDigest.
He believes the shipper-carrier relationship has "changed forever," and the two parties need to think much more creatively and work together more constructively to provide the level of supply chain predictability needed in this new world.
"Shippers now have to build in additional lead times to their supply chain; there are also many more joint strings, meaning several carriers operate on one service. That in turn means much less service differentiation," Dekker adds.
He says that until just the past few years, carriers like MSC, Evergreen and Maersk operated almost totally independently, whereas today that work together share costs.
Instead of just agreeing to a new contract on the basis of "X" rate for a total "X" TEU per annum, Dekker says, carriers and shippers need to feed much more information into the system, such as volumes on specific port pairs at certain times of the year and for certain types of equipment, such as high cubes.
"This will gives carriers a better chance to manage both capacity and equipment throughput during the year and in return shippers will get a little more security in terms of space," Dekker says.
Dekker thoughts come in part based on a new report from Drewry called the Annual Container Market Review & Forecast 2010/11, available for purchase at the Drewry web site.
What's your take on Dekker's view of the ocean shipping market? Have the relationships between shippers and carriers "changed forever?" Is the service sharing between carriers a good or bad thing - for either side? Let us know your thoughts at the Feedback button below.