The container-shipping industry is contending with the longest stretch of near-zero rates in its half-century history on the Asia-to-Europe route, as a capacity glut combines with the slowest growth in trade since 2009.
Commerce on the world’s second-busiest container route rose 4.2 percent in the second quarter, the weakest since the end of 2009, Woking, England-based Container Trade Statistics Ltd. estimates. Rates excluding fuel surcharges were “practically” zero in July and little changed this month, the worst run ever, said Menno Sanderse, an analyst at Morgan Stanley in London.
While growth in container volumes has slowed for four consecutive quarters, it’s still nowhere near the 22 percent contractions seen in the first half of 2009. Europe normally imports more goods this quarter as shops begin stockpiling for the December holidays. That gain may be curbed this year as retailers anticipate mounting concern about economies and jobs will hurt consumer spending.
“If you’re a large retailer and you have this turmoil, you’re going to be worried,” said Lars Jensen, chief executive officer of Copenhagen-based SeaIntel Maritime Analysis, which advises shipping companies and ports. “Will people shop or not for Christmas or will they shop more or less than usual? The more uncertain you are, the more you are likely to err on the side of caution on the procuring side.”
Container trade on the Asia-Europe route will expand by an average of 4 percent to 6 percent this year, compared with 15 percent growth in fleet capacity, according to Morgan Stanley. The cost including surcharges of hauling a 20-foot box from Shanghai to north-west Europe was last at $839, 61 percent down from the peak of $2,165 reached in March 2010, said Mels Boer, a freight derivatives broker with ACM/GFI in London. He cited a weekly index produced by the Shanghai Shipping Exchange.
Equity analysts are increasingly bearish on what slowing trade growth means for company earnings. A.P. Moeller-Maersk A/S, the world’s biggest container-shipping line, will report a 25 percent slump in net income to 19.71 billion kroner ($3.8 billion) this year, the mean of 16 estimates compiled by Bloomberg shows.
While the median estimate fell 21 percent since the start of the year and shares of the Copenhagen-based company tumbled 31 percent, just four of 24 analysts tracked by Bloomberg rate the stock a “sell.”
The industry may lose $2.5 billion to $3 billion this year, said Philip Damas, director of liner shipping and supply chains at Drewry Shipping Consultants Ltd. in London. Owners and operators lost $20 billion in 2009, when the global container trade contracted for the first time ever, he said.
The Asia-to-Europe container route is exceeded only by trade from Asia to the U.S. West Coast and accounts for about 9 percent of annual global shipments of 139.9 million 20-foot equivalent units, the benchmark container size, according to London-based Clarkson Plc, the world’s biggest shipbroker.
There are 355 ships working the route, Containerisation International, a London-based provider of data and analysis, estimates. Westbound trade is more than double the volume of goods going east.
Carriers are cutting services and idling more ships to trim capacity and bolster rates, Paris-based BRS-Alphaliner, a data provider for the industry, said in a report Aug. 2.
The equivalent of four vessels, each capable of hauling 8,000 20-foot containers, joined the route each week in 2011, boosting fleet supply by 12 percent from a year ago, Alphaliner estimates. That spurred more idling, with a combined 210,000 20-foot containers of capacity being suspended from trading by Aug. 29, compared with 150,000 units as of Aug. 15, said Yann Le Gouard, a consultant at the company.
The global fleet of container vessels expanded 17 percent to 4,767 since the end of 2007 and orders at shipyards are equal to almost 28 percent of existing capacity, data from Redhill, England-based IHS Fairplay show.
That’s less than the glut in carriers hauling dry bulk commodities including coal and iron ore, where orders are equal to 36 percent of current capacity. The Baltic Dry Index of rates for such ships plunged 41 percent in the past 12 months, according to the Baltic Exchange, which publishes daily assessments for more than 50 maritime routes.
Oil-tanker owners are losing money, with returns on the benchmark Saudi-Arabia-to-Japan route going negative this month, data from the London-based bourse shows. That means owners were effectively paying customers to charter their vessels, agreeing to do so because it would cover some fuel costs while ships move to more profitable regions.
About 90 percent of global trade moves by sea, according to the Round Table of International Shipping Associations.
Container lines responded by slowing ships down to reduce fuel costs and prolong journeys. Maersk vessels are averaging about 18 knots for shipments to Europe from Asia, compared with 21 knots before the 2008 financial crisis, said Morten Engelstoft, the chief operating officer of Maersk Line, the container unit of A.P. Moeller-Maersk.
That decline in speed adds more than three days to a journey to Rotterdam, Europe’s biggest port, from Shanghai, according to SeaRates.com, an online freight exchange.
Owners may respond to the plunge in returns by suspending more ships from service, potentially bolstering rates in the fourth quarter and into the first half of next year, Morgan Stanley’s Sanderse said in a report Aug. 3.
“We do expect a peak season in coming months even though it is likely that it will be shorter than we’ve seen in earlier years,” said Engelstoft at Maersk, which has about 100 ships on the Asia-Europe route.
Fleet growth is having a bigger effect on the industry’s profitability than slowing growth in trade, he said. Container shipping accounted for about 58 percent of the company’s net income last year, data compiled by Bloomberg show.
The U.S. economy expanded at a 1 percent annual rate in the second quarter, capping the weakest six months of the recovery that began in 2009, the Commerce Department reported Aug. 26. European second-quarter growth rose 0.2 percent from the previous three months, the slowest since late 2009, the European Union said Aug. 16.
Trade on the Asia-Europe route will expand 5.1 percent this year, Clarkson said this month, reducing its previous forecast of 6.2 percent. Container freight derivatives, used to bet or hedge on future costs, were priced at $938 per 20-foot container on the Shanghai-to-Northwest Europe route from October to December by 9:03 a.m. today, according to Clarkson Securities, a unit of Clarkson. That’s down 6.25 percent from a week ago.
While shipments from Asia to Europe and the U.S. expanded faster than other routes over the last decade, that ranking will likely reverse over the next three to five years, said Jensen of SeaIntel Maritime Analysis.
A U.K. retail-sales index fell to the lowest level since May 2010 in August, the Confederation of British Industry said Aug. 25. Peter Marks, chief executive officer of Co-operative Group Ltd., the U.K.’s largest mutual retailer, said the same day that trading conditions were the worst he’d seen in more than four decades. European retail sales fell for a fourth month in August, London-based Markit Economics reported yesterday, with a reading of 48 on its gauge indicating a contraction.
European consumer spending related to the Christmas holidays will probably be “subdued” this year outside of Germany, said Boris Planer, the research director of market data for Frankfurt, Germany-based Planet Retail GmbH. It’s unlikely to reach the depths seen during the global recession, he said.
Maritime Transport Ltd., a Southampton, England-based company that trucks containers from ports to depots, would normally see daily deliveries rise to 2,000 from about 1,700 during the peak season for retailers stocking up for the year-end holidays. That’s unlikely this year as families trim spending, said John Williams, managing director.
“If you’re involved in food distribution you might not be delivering fillet steaks,” Williams said. “You might be delivering pork pies instead.”