Eyes of the Fleet

Eyes of the Fleet

Friday, July 28, 2006

Container shipping rates fall: Law of Supply and Demand at work

Classic result of the Law of Supply and Demand at work as set out here:
As bigger container vessels enter into service, the container shipping industry is beginning to feel the pinch as demand has not picked up as much of late, says Winston W.F. Loo, managing director of Barwil Unitor Ships Service Malaysia.
On the local front, he said rates had dropped like about 19 percent at the end of first half of the year compared with the last quarter of 2005.

When compared with first quarter of 2005, the drop has been in excess of 30 percent, he disclosed.

Base Ocean Rates to Europe in the local market currently have been hovering between US$700-750 per TEU (twenty-foot equivalent), way below rates of US$1,200 - 1,300 per TEU during the heydays of 2004/05 period.
On the other hand, he felt that there was still a problem affecting the container industry, especially with the mis-match in timing of these large vessels entering into service as they were ordered during the good times of 2004 and 2005.

But he conceded that "you can't order for ships today and get them tomorrow", adding that there has to be a considerable time lag before the ships could come into service after they had been ordered.

Loo believed that competition is expected to intensify as bigger vessels like those with a capacity of 9,600 TEUs by China Shipping and the 12,000 TEUs ships of Maersk Line, amongst others, coming into service.

"The (start of the) second half of the year is not looking good given that the summer season is usually a period whereby volume would actually start to taper off, with the rebound coming in late August or September before tapering off again for the year end festivities in November," he said.

Between now and 2008, more large container vessels are expected to come into service.

"The scary part is whether there is enough demand to take-up the ample space (in the vessels)," he told Bernama in a recent interview.

Loo said it was forecast that the available container capacity worldwide would expand by about 50 percent between 2006 and 2008.

As a booming economy, he felt that if China could take up much of the capacity being injected to the industry, shipping rates could be maintained at current levels.

If not, he believe they could come down further.
Except, of course, that some firms, unable to make money in a excess capacity market, will lay up their less efficient ships and capacity will decrease as a result.

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