2012 Brings Record Capacity

Braemar Seascope says in their latest Containership Fleet Statistics report that next year will bring record capacity levels to the ocean shipping industry. They expect containership deliveries to approach 1.55 million TEU in 2012. The prior record for growth was 1.52 million TEUs in 2007. This will increase capacity levels to 16.8 TEUs. New deliveries will expand capacities to 9.5 percent over available space this year.

Weakening demand and soft ocean freight pricing over multiple trade lanes are already being seen. A lot of additional vessels are being added to the ultra-large sector, increasing the possibility of excess overcapacity in the Asia-Europe trade lane. Overcapacity has already been chipping away at ocean freight rates in this area since last year. The new ultra-large ships in the Asia-Europe trade lanes would be enough to create another five loops, each with 13,000 TEU vessels, according to the Journal of Commerce.

"Of the 230 ships due for delivery next year, 59 have a nominal container capacity of 10,000 TEUs or more, which will introduce an additional 0.8 million TEUs into this segment. The growth of containerships fleets in the size bracket of 10,000 TEUs or more is already expected to reach 70 percent year-over-year in 2011, and will grow by an additional 57 percent in 2012," as stated in a Journal of Commerce article.

Growth is projected to reach 2.9 percent in 2011 and is expected to reach 3 percent in 2012. Ocean shipping vessels of 10,000 TEUs and higher make up almost half of the global <a href="http://www.shiplilly.com/"title="Ocean Freight">ocean freight</a> ship orders, by capacity. The Journal of Commerce states that "since January 2010, owners have ordered 1.7 million TEUs of capacity on boxships with a capacity of 5,100 TEUs or more compared with 0.4 million TEUs of smaller ships below 5,100 TEUs." They say that containerships of up to 5,100 TEUs make up only about 20 percent of the global orderbook.

Braemar has forecasted that the huge additions to the cellular fleet in the ultra-large sector will raise the threat of overcapacity for the Asia-Europe trade lane, in particular. Braemar also says that "because shipowners in Germany's KG investment market have largely gotten out of the business of ordering ships, investment in smaller container ships has been lackluster." However, Braemar expects renewed interest in feeder tonnage after the investments being made in post-Panamax ships dies down.

An article on MarineLog's web site states that "Fleet growth for the 10,000 TEU plus size bracket is expected to reach 70% year on year for 2011 and a further 57% in 2012."About the Author

About the Author: Nelson Cabrera is the Business Development Manager of Lilly & Associates International, a transportaion and logistics company specializing in ocean freight and ocean shipping services. For more information, please visit http://www.shiplilly.com/.

Ocean Freight Rates Expected to Lag

According to a report by Macquarie Equities Research, increasing container volume as the year progresses combined with weakened inventory restocking is not likely to inspire higher ocean freight rates. Macquarie Group is a leading provider of banking, financial, advisory, investment and funds management services.

"Given the considerable amount of overcapacity currently seen on some trade lanes — in particular Asia-Europe — we consider it unlikely that peak season volumes will be sufficient to stimulate a meaningful upturn in freight rates," the report said.

They forecast a 6.6 percent year-over-year increase in global container volume by the third quarter of 2011. The forecast for the fourth quarter 2011 was 9.8 percent. They also stated that their predictions will "be helped by soft comparisons with weak volume in the final months of 2011." In their last Counting Containers report they forecast an increase in global container volume of 7 to 8 percent for the year, but are now forecasting an 8.1 percent increase.

Global container volumes were high in the second quarter this year, and according to an article on the Journal of Commerce site, are "likely to set a record for global volume". However, a lagging in inventory restocking, which isn't expected to increase by much through the peak fall season, is likely to keep freight rates near flat. Macquarie is not expecting inventory restocking to increase by much in the second half of this year despite a "historically low inventory-sales ratio for US retailers"

"Contrary to the view of some industry observers, our analysis does not suggest that container volumes … will benefit from a meaningful increase in inventory levels," the report said. Another reason for container volume growth to be lower than expected was that volumes could be affected by improved container stuffing, which would improve the capacity of containers and therefore reduce the number of boxes needed.

Macquarie said that some companies utilizing ocean shipping, such as Wal-Mart, had recently undertaken projects to maximize the amount of cargo it could fit into an <a href="http://www.shiplilly.com/"title="Ocean Freight">ocean freight</a> container, partly by minimizing packaging. Wal-Mart also has "implemented a 3 percent penalty on suppliers whose products arrive at regional distribution centers outside a four-day delivery window".

They report that US companies have already restocked their inventories that were depleted in 2009. They said that the manufacturers' inventories are what they would consider, excessive. Companies are just being more careful about what they order and want to better manage their supply chains. The new trend of keeping a small inventory may be "an ongoing structural shift rather than transitory weakness".

About the Author

About the Author: Nelson Cabrera is the Business Development Manager of Lilly & Associates International, a transportaion and logistics company specializing in ocean freight and ocean shipping services. For more information, please visit http://www.shiplilly.com/.

Asian Shipping Suspected of Price Fixing

On May 17, 2011, the European Union antitrust officials conducted several unannounced raids on the European offices of a few Asian carriers and European ocean shipping lines.  This was a probe to address suspected price fixing , as reported by  the lines raided.  According to an article on the JOC Sailings website, the European Union raided companies including Maersk Line, CMA CGM, and Hapag-Lloyd.

Other companies reportedly included in the raid were Neptune Orient Lines, OOCL, Evergreen Marine and Hanjin Shipping.  The European Commission reports that they have "reason to believe the companies concerned may have violated the antitrust rules that prohibit cartels and restrictive practices and/or abuse of a dominant market position."

Antitrust rules in place since 2008 have taken away large carrier lines' former exemption from antitrust enforcement.  
Antitrust laws prohibit anti-competitive behavior, punishing those who participate in unfair business practices or monopoly-like behaviors.  Antitrust laws encourage competition in the sector and make it illegal to use tactics that are detrimental to other businesses or consumers.  The antitrust laws cover many areas of unfair practice and keep companies from violating accepted standards of ethical behavior.

Companies involved in the raid and investigation seem to be compliant and open to fully disclosing information of interest.  "NOL understands that the intent of the inspection is to identify the existence of any evidence of infringement of anti-competition rules relating to the liner shipping industry."  Stanley Shen, spokesperson for OOCL said "We can confirm that the EC raided our office in the UK's Levington.  It's a very general raid and not carrier-specific, it seems."  Stanley Shen also stated that he believes that they are in "compliance with the anti-competition regulations and is cooperating fully with the European Union."

A spokesperson for Evergreen also said that "Evergreen will continue to fully cooperate with the EC agents in their efforts."  Hanjin Shipping reported that their Hamburg office was inspected by EU officials and said that they would also comply and fully cooperate with the investigation.

Many <a href="http://www.shiplilly.com/"title="Ocean Shipping">ocean shipping</a> lines have prospered because of the antitrust laws and are happy to comply with EU officials.  Everyone seems to understand that the laws are in place to prevent eventual market failure and unfair advantages in the marketplace.  The term "antitrust" was originally used to combat business trusts, now more commonly termed as cartels.  In this case, the activity being scrutinized by the EU under the antitrust agreement was price fixing.  There has been no official report released at this time regarding the findings of the EU, but ocean freight shippers seem to be more than willing to comply. 

About the Author

About the Author: Nelson Cabrera is the Business Development Manager of Lilly & Associates International, a transportaion and logistics company specializing in ocean freight and ocean shipping services. For more information, please visit http://www.shiplilly.com/.