Container shipping freight rates, which have shown signs of recovery at the beginning of the year, are now back sailing on choppy waters as rates continue to be battered by excess supply.
According to CIMB Research, despite the gloomy rate environment, containership newbuilding orders have zoomed ahead, with over a million twenty-foot equivalent units (TEUs) ordered year-to-date from about 700,000 TEUs last year.
“This has tilted the equilibrium negatively and supply is now expected to grow faster than demand in 2012 and 2013.” it said.
The research house said it was bullish on the sector at the start of the year based on a modest pace of newbuilding orders, but the dramatic surge of orders had taken it by surprise.
“We are worried that liners are repeating the mistakes of the past,” it said in a recent sector report.
It said freight rates continued to be battered by excess supply, and base rates for Asia to Europe are probably close to zero.
“Rates between China and Europe have declined 60% to US$874 per TEU, from a peak of US$2,164 per TEU in March 2010, and are now close to zero after deducting the bunker adjustment factor of around US$750 per TEU.
“Spot rates have declined despite higher bunker prices, exacerbating the squeeze on margins,” said the research house.
CIMB Research expected rates could plummet below bunker costs over the next month or two.
“Maersk and MSC have already deferred proposed rate increases from June to July on weak ship utilisation, which could prevent a sustained rise in rates even during the coming peak season.
It said the present situation was much worse than its expectation at the start of the year.
According to Alphaliner, weekly Asia-Europe (AE) shipping capacity was 21% higher year-on-year (y-o-y) in May, substantially ahead of the 4% y-o-y rise in head-haul trade volume in April.
“Also, economic indicators in Europe appear to be weakening, with a flattish composite leading indicator for the big four European economies, weak retail sales, and rising retail stock levels.
The weekly expects carriers to begin cancelling services, redeploy capacity to other trades, or lay up ships if the situation continues.
Sharing the negative sentiment, according to CIMB Research, is Transpacific rates, which had resumed its downtrend after making tentative upward moves in April and early May.
“The Transpacific Stabilisation Agreement, a research and discussion group of 15 major container shipping lines had recommended US$400 per forty-foot-equivalent-unit increase in contract rates from May, but carriers likely lowered rates instead.
“According to Alphaliner, Transpacific capacity was 19% higher y-o-y in May against a 7% to 8% annual demand growth,” it said.