Some shipping industry analysts are warning that the near future will see a growing excess of container capacity, caused by the introduction of larger ships by major carriers. Ronald D. Widdows, chief executive officer of APL Ltd., isn't having any of it. He believes that trade growth will be vibrant enough to absorb the new capacity-and then some. Speaking at the recent Trans-Pacific Maritime (TPM) Conference in Long Beach, sponsored by The Journal of Commerce, Widdows cited predictions that containerized trade volumes will double between 2000 and 2010, to just under 120 million twenty-foot equivalent units (TEUs). At the same time, he said, capacity and fleet growth will slow, with a narrowing of the gap between supply and demand from this year onward. By 2009, he said, quoting numbers from Goldman Sachs, "demand will exceed capacity." And with shipyard orderbooks already full, carriers won't be able to catch up with the market. Julie Lim, executive director of Asia-Pacific transportation research for Goldman Sachs, agreed that severe overcapacity isn't likely to materialize any time soon. In the trans-Pacific trades, she said, "supply tends to be overestimated. Demand tends to be underestimated." Lim predicted no more than a 2-percent imbalance between supply and demand this year, not much different from what was experienced in 2006.
Widdows used that scenario to argue the need for higher freight rates. In the last four years, he said, only two carriers, OOCL and APL, showed a positive Economic Value Added. Industry's failure to generate adequate returns is largely the result of a focus on market share at the expense of profitability, he said. At the same time, carriers need capital to make necessary investments in infrastructure and cope with rising overhead, especially fuel costs. According to Widdows, there is a "broad acceptance" among industry participants of the need to increase freight rates for intermodal service, as well as for the movement of trans-Pacific cargoes to the U.S. East Coast via the Panama Canal. By any standards, the Asia-U.S. container trade is likely to continue its vibrant growth in the near term; estimates range between 8 percent and 12 percent for 2007 and 2008. Widdows also bemoaned what he views as a lack of true partnership between carriers and shippers on issues of rates and service. If the parties don't get together soon to address looming problems of infrastructure and profitability, he said, "we're all going to suffer at the end of the day."
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