Executive Briefings

Mega Alliances, Declining Unit Costs Will Spark Recovery in Ocean Container Business in 2016-2017, Report Says

The recovery of the ocean container industry – possibly by late 2016 or 2017 – is to be based around the formation of the new mega alliances and the continued reduction of unit costs, rather than the matching of supply and demand at the individual trade route level, according to Drewry's Container Annual Review & Forecast 2014/15. A different recovery is taking shape, which is unlikely to be built on any improvement in freight rates.

Mega Alliances, Declining Unit Costs Will Spark Recovery in Ocean Container Business in 2016-2017, Report Says

An orderbook that will see at least 53 and 45 ULCVs delivered in 2015 and 2016, respectively, coupled with the delivery of 100 ships of between 8,000 TEU and 10,000 TEU from the yards at the same time as a similar number of ships being cascaded from the Asia-north Europe trade, will mean both reductions in unit costs and the potential for excess capacity on some routes.

Drewry forecasts that freight rates will decline in 2015 by as much as 3 percent to 4 percent year-on-year.

The focus is therefore more on costs than revenue at the moment and this focus is starting to yield results for carriers and their shareholders. Drewry’s Container Annual Review & Forecast 2014/15 identified three new trends: carrier revenue is increasing again (due to more rapid growth), costs are falling faster than rates, and some carriers are coming out of the red. To clarify, even though unit revenues are down by an estimated 4 percent year-on-year for the first six months of this year, the positive is that unit costs have been reduced by 6 percent.

The formation of the new alliances in the next 3 to 6 months may help a number of carriers reduce their cost base further, but Asia-to-North Europe spot rates have fallen 54 percent since the beginning of August to around $1,300 per FEU.

“The possibility of matching supply and demand to a degree acceptable for carriers in 2015, especially at the critical trade route level and in key North-South trades is probably out of reach,” says Neil Dekker, Drewry’s director of container research. “The strategy of course is to drive down unit costs, but this will not necessarily result in considerably better utilisation (since all lines upgrading), nor in freight rates.

“The question we should be asking is not about when a recovery will happen, but what form the so-called recovery will take. In essence, the industry is merely continuing to adapt as best it can. Recovery, in whatever form it takes, will not simply be in the traditional manner of matching supply and demand. This is about survival and the long-term management and sharing of costs. ”

The report will be available from the Drewry website

Source: Drewry's

An orderbook that will see at least 53 and 45 ULCVs delivered in 2015 and 2016, respectively, coupled with the delivery of 100 ships of between 8,000 TEU and 10,000 TEU from the yards at the same time as a similar number of ships being cascaded from the Asia-north Europe trade, will mean both reductions in unit costs and the potential for excess capacity on some routes.

Drewry forecasts that freight rates will decline in 2015 by as much as 3 percent to 4 percent year-on-year.

The focus is therefore more on costs than revenue at the moment and this focus is starting to yield results for carriers and their shareholders. Drewry’s Container Annual Review & Forecast 2014/15 identified three new trends: carrier revenue is increasing again (due to more rapid growth), costs are falling faster than rates, and some carriers are coming out of the red. To clarify, even though unit revenues are down by an estimated 4 percent year-on-year for the first six months of this year, the positive is that unit costs have been reduced by 6 percent.

The formation of the new alliances in the next 3 to 6 months may help a number of carriers reduce their cost base further, but Asia-to-North Europe spot rates have fallen 54 percent since the beginning of August to around $1,300 per FEU.

“The possibility of matching supply and demand to a degree acceptable for carriers in 2015, especially at the critical trade route level and in key North-South trades is probably out of reach,” says Neil Dekker, Drewry’s director of container research. “The strategy of course is to drive down unit costs, but this will not necessarily result in considerably better utilisation (since all lines upgrading), nor in freight rates.

“The question we should be asking is not about when a recovery will happen, but what form the so-called recovery will take. In essence, the industry is merely continuing to adapt as best it can. Recovery, in whatever form it takes, will not simply be in the traditional manner of matching supply and demand. This is about survival and the long-term management and sharing of costs. ”

The report will be available from the Drewry website

Source: Drewry's

Mega Alliances, Declining Unit Costs Will Spark Recovery in Ocean Container Business in 2016-2017, Report Says