Drewry: Container Shipping Losses to Cap USD 5bn in 2016

Freight rates for container shipping are expected to experience a further fall in 2016 as the supply-demand imbalance continues widening resulting in more losses for boxship owners, according to shipping consultancy Drewry.

Many stakeholders point to the fact that bunker prices of for example USD 140 per tonne in Rotterdam (IFO380) are clearly contributing to lower overall container freight rates, but Drewry believes that a new and worrying trend has become apparent for ocean carriers.

“Our most recent data suggests that carriers are no longer able to cut costs faster than the prevailing declines seen in the freight rate market. Drewry believes that oil prices have probably hit the market bottom right now and costs for the positioning of empty containers and vessel lay ups will increase this year. Our latest calculation is that a 10,000 teu vessel would incur a minimum of USD 450,000 in reactivation costs if laid up in Asia for three months or more. It should also not be forgotten that many lines no longer even quote a BAF on some trade lanes,” Drewry said.

The consequence of this is that Drewry expects industry losses to widen to over USD 5bn in 2016.

Ocean carriers believe they have taken a great deal of corrective action during the final three months of 2015 in order to lift very low freight rates. However, Drewry believes that the removal of six major east-west services and the blanking of 32 voyages in November and 21 in December did relatively little to improve trade route supply/demand balances.

The GRI initiatives implemented in late 2015 did not work for carriers on many trade lanes and in some cases were suspended or postponed because conditions were simply too feeble.

Drewry believes that more needs to be done and that industry consolidation may well reduce the number of big market players and improve individual company efficiency, but will not reduce industry vessel capacity in any way.

“With the idle fleet touching one million teu in late 2015, or just under 5% of the global fleet, decisions need to be taken by lines to remove more vessels and re-structure more trade lanes with new operational agreements. Big vessels no longer guarantee decent profitability and should Asia to North Europe contract rates be signed at an average USD 900 per feu (and this could be too optimistic) for 2016, this equates to an estimated USD 1.4 billion loss for the carriers on one trade lane,” the consultancy went on to say.

Neil Dekker, Drewry’s director of container research, said: “Comparisons are being made to 2009 when approximately 1.3 million teu was removed from a considerably smaller fleet. The mass scale lay ups were triggered by the fact that lines ran out of cash. The industry is not there yet as some lines are still making a profit and the very low fuel prices are propping them up. But a further two or three quarters of declining financial profitability may trigger a notable rise in the idle fleet as we enter the second half of 2016.”