Tuesday, June 1, 2010

Shipping rates plunge as idle ships deployed

Shipping rates on the Asia-Europe trade route have dropped for more than 12 consecutive weeks because of a hasty resumption of idled capacity and new vessel deliveries.

Almost 30% of what had been a rebound in the freight rates over the past year has been wiped out since March as nearly one million 20-foot equivalent units (TEU) of idled vessels have been reintroduced into operation in the year.

The weekly capacity on the Asia-Europe trade route is expected to rise 15% to 48,550 TEU next month from January, industry sources said. Most of this increase is derived from the revival of idled vessels. At the same time, 10 new 13,000 TEU vessels are to be deployed by Maersk Line and CMA CGM in the trade lane.

The idled fleet dropped from a peak of 1.5 million TEU in December to less than 550,000 TEU on May 24, shipping consultant Alphaliner said in a weekly report. As June and July are the peak seasons for the trade lane, it expects the laid-up vessels to further decline to 450,000 TEU by the end of this month.

"Capacity management is the perennial weakness of the shipping lines because the industry is very fragmented and lacks a market leader to stabilise the market," Geoffrey Cheng, a transport analyst at Daiwa Capital Markets, said.

Tung Chee-chen, the chairman of Orient Overseas (International), warned of the problem more than two months ago.

"Any imprudent reintroduction of capacity currently idling or laid up, if mismatched with demand, could see fresh rounds of rate cutting," he said in March.

Since then, the freight rates on the Asia-Europe trade route have fallen 17%.

Transpacific trade, however, is subject to yearly contracts and is less volatile.

Average freight rates from the mainland to northern Europe fell to US$1,802 per TEU for the week to May 23, compared with US$2,164 during the week to March 5.

Laid-up vessels compared with the global fleet have dived to 4.1% from 11% last year.

China Shipping Container Lines, however, said rates on the Asia-Europe trade route had reached the bottom. Freight rates had stabilised and demand from Europe had increased, its investor relations manager Frank Fan said.

Source: Edge Daily

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