Container lines should prepare for rough

Container lines will see their financial performance worsen in the second quarter of the year, as weakening freight rates and rising operating costs hit their bottom lines.

Analyst Alphaliner said hopes for a rapid recovery in the container shipping market have evaporated, with little sign that freight rates would show any significant improvement before July.

The average operating margins among the five main container lines slumped from 13% in the third quarter of 2010 to -1% in the first quarter this year.

There was, however, a wide variation in the Q1 operating margins of the individual carriers, ranging from 7% at Maersk to -13% at CSAV.

“The varying performance among the main carriers could prolong the current downturn, as concerted actions to curb the oversupply conditions are delayed,” said Alphaliner.

“Carriers’ initial warnings about slot and container shortages have failed to materialise so far, as significant new vessel capacity has been added and investments in new container equipment have continued to stream in.”

However, the World Shipping Council has warned that reduced container production levels in 2009 and 2010 will affect the supply of boxes this year – especially in the upcoming peak season.

Meanwhile, efforts to raise freight rates on the Far East to North Europe trade have been hampered by weak utilisation levels. Plans to raise rates by US$200-$300 per teu this month have been postponed to June, due to strong market resistance.

“The momentum is moving against carriers this year, with freight rates still trending down, even as the traditionally strong summer season looms,” Alphaliner said.

The analyst found that on the transpacific trade, rates have also remained weak, despite some recent strengthening in spot rates.

And it is understood that 2011-12 contracts between shippers and carriers implemented this month have been concluded at rates below those signed last year.

Alphaliner said: “This will have a negative impact on carriers’ bottom lines for the rest of the year, as the vast majority of transpacific volumes are moved on contract, with only a small percentage of cargo moved on spot rates.” (source: IFW)

Back to archive