Freighting Update – Analysis


A week is a long time in politics, and container liner shipping: 30 weeks is an eternity by Mike Wackett - Containerisation International


IN April 2011, Alphaliner wrote: ‘Container shipping lines’ operat- ing margins recovered strongly in 2010...industry-wide aggregate operating profits reached an esti- mated USD14 billion last year, which made 2010 the most prof- itable year for carriers in the industry’s


history.’


Just over 30 weeks later the Paris- based analyst reported on a USD1.6 billion Q3 11 loss from lin- ers that had declared their results - probably in excess of USD2 billion if you add in the sometime trans- parent CMA CGM, and the maverick MSC into the equation. So what went wrong? Why did the liners’ 2011 business plans end up in taters? The answer is not rocket science


it is more complex; it is a question of supply and demand: an eco- nomic model


of price


determination in a market. The economics tutor would thus


explain the four basic laws hereun- der: 1.


supply remains unchanged, then it leads to higher equilibrium price and 2.


If demand decreases and sup-


ply remains unchanged, then it leads to lower equilibrium price and 3.


If supply increases and


demand remains unchanged, then it leads to lower equilibrium price and 4.


higher quantity. If supply decreases and


demand remains unchanged, then it leads to higher price and lower quantity. The above ‘basic laws’ were of


course applicable during the 2010 golden days and previously in the Lehman Bros-induced recessionary year of 2009; the boot has been on the foot of shippers and carri- ers alternately. But the difference in 2011, ver-


sus other downturn years is that this time nobody blinked in the Last Chance Saloon; at least until the very last moment, when the year was already written off and the Titanic had ploughed into the iceberg.


F12 quantity. If demand increases and quantity.


Indeed, the decision of small


intra-Asia liner player MISC to call time recently on its last remaining container trades was described by analysts at Citi bank as ‘a rare rational step in an otherwise irra- tional industry’. In fact it does seem unbeliev-


able that late in 2011, an industry, after a confessional promise not to make the same mistakes again, having ‘learnt its lesson’ is back in a considerably more precarious position than it was in 2009. In that year, the carriers dealt


with the crisis promptly by moth- balling more than 600 boxships equating to around 1.5 million slots; as of today idled slots account for only an estimated 400,000 TEU or 200 ships. Moreover, 170 newbuilds have


been received so far this year - with a mind-boggling 60 boxships in excess of 10,000TEU scheduled for delivery from South Korean and Chinese shipyards over the next year. Thus the so-called ‘new’ disci-


pline of the liners was quickly forgotten in the ego-driven race to the bottom: despite ‘perfect storm’ warnings in early Q2 11, ships were not idled and new ton- nage kept rolling in to worsen the climate. Accepting that ocean carriers


could not have predicted the cur- rent


dire financial crisis


impacting its key European market - in fact neither could the politi- cians - or perhaps the sluggish recovery of the US market, the ill- discipline of capacity management has seriously compounded the problem for the container liner industry and almost extinguished the light at the end of the tunnel. Indeed according to the latest


OECD report, the eurozone and peripheral nations will slide into a double-dip recession in 2012 - hardly the firmest foundation for key Q1 12 results. It follows that any tradelane


budgets on the boardroom table now will either be thrown out as unacceptable; or in the case of a profit prediction be regarded as overly optimistic by suspicious investors and shareholders. To come through this latest cri-


sis the liners will need urgently to radically cull tonnage: there is


Michael Wackett is the News Editor at Containerisation International.


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surely no point in deploying state- of-the-art ships that return a negative USD300 per TEU on the highly overtonnaged Far East to Europe tradelane? The other solution is for liner


consolidation - however complex this may be within the current alliance structures. And even the self-styled deep-


pocketed Maersk can ill afford too many more quarters of USD300 million losses; especially if the net effect is to also slash its owned ship asset values.


Do you expect there will be significant liner consolidation in 2012?


The editor would be delighted


to hear your views: michael.wackett@informa.com


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