Pity the poor shipper. His super star status has been turned upside down. That line of carriers beating a path to his door for a whiff of freight has evaporated. A seemingly endless supply of containers and space is a distant memory. And, as the ultimate insult to injury, our poor shipper is paying more than twice to move a container this year over last. Whoever said you get what you pay for could not possibly have experienced the container shipping industry.
The market rewards scarcity; even industry-made scarcity. The reduced supply of capacity through idled tonnage and slow steaming initiatives has perhaps worked too well. As carriers scramble to put more tonnage back into service in time for Peak Season, other unexpected by-products of slow steaming have come to light.
In a recent article in International Freighting Weekly, CMA CGM Senior VP, Nicolas Sartini said, “In terms of container availability, we are starting to see the impact of slow steaming. It takes more time to bring back equipment to Asia from Europe and the U.S., on any trade.” Back hauls are primarily used for equipment repositioning.
Asia-Europe and the Transpacific are no different. Many carriers would prefer to haul empty containers back to Asia from Europe and the U.S. than have freight for the very simple reason that an empty container is ready for loading immediately and does not have to be emptied and returned to the depot before being available for the high paying head haul trade. A 20-30% increase in transit time significantly adds to the inventory turnover ratio and cuts into equipment availability.check more details at http://www.nautisnp.com.
Out of recessions come growth; more often unbridled growth from pent-up demand. Financial crises and industry meltdowns, on the other hand, breed unintended consequences. Last year, for example, in the midst of what was historically the worst year in container shipping, many container manufacturers stopped production.
As the May 2010 edition of Containerisation International explains, “…the box building industry ended 2008 with an installed (twin-shift) annual capability exceeding 5.5 million TEU. This was then matched by output which had topped 1 million TEU per quarter throughout the two years up to late 2008. By contrast, global production slumped by 90% in 2009, to just 430,000 TEU, less than half of which was of ISO standard build.”
Put simply, the demand (read price) for containers fell so far, so fast that it stopped making sense to manufacture them. Carriers were not the only ones in the industry to “idle” capacity. Global container manufacturer capacity stands today at around 2.5 million TEU with prices on the upswing; a far cry from the peak of 2008.
There are clear consequences when carriers participate in a rate war “race to the bottom”. The impact on Non-owning Operators, German KG companies has still not worked its way through the markets.Visit the original source to get updated information.
Containerisation International on June 2 reported, “The credit crunch has given most ship-owners a major financial headache, and no more so than in Germany. Several will not survive. ..Over half of the capacity of the container vessel armada due for delivery by the end of 2014 was ordered by tramp vessel operators, most of which are based in Germany. In January of 2010, this armada stood at 810 vessels averaging 5800 TEU, or 36.3% of the existing world fleet.
“The companies most at risk are those that ordered vessels using funds obtained by banks to pay the initial deposit to the shipyard. Their expectation was that they would be able to raise cash afterwards from investors, but that is no longer achievable due to investor disenchantment with an industry that is expected to have lost over $20 billion in 2009…The end result is that orders will either have to be postponed or cancelled.”
The impact of the near financial collapse of the industry has changed it, likely for good. Carriers must be profitable. Vessel capacity and equipment supply cannot excessively outstrip demand like it did in 2009 again. The banks and financial companies will not tolerate it.
Yes, pity the poor shipper. His world will never be the same.
Next: What shippers should be doing to keep costs down and service levels up in the next two years.