TEU tonic
August 18, 2010 by Jules
Global trade rebound
Two very interesting report from the FT today, illustrating a trade rebound that we did not entirely believe in. We had discounted the recent sharp increases in container shipping rates as shipping capacity being held back by the main shipping lines but this was not the true picture, read on below:
" The deep, steep-sided sea inlet of Loch Striven, on the Firth of Clyde on Scotland’s west coast, was the scene this summer of a remarkable illustration of the speed of the container shipping industry’s turnround.
The loch had been home since July last year to a group of six, lashed-together idle container ships owned by Maersk Line, much the world’s largest container shipping line. Five of the ships had such high top speeds, and consumed such huge amounts of fuel, that container shipping’s deepest-ever slump looked set to keep them out of use almost indefinitely.
Yet by June booming trade volumes had made the need for the ships so acute that tugs came to separate the idle vessels. They slipped one by one out of the loch in June and July and back into service.
Similar scenes have been seen in the scores of other rivers and inlets that, in the depth of the sector’s crisis, were home to more than 12 per cent of the world’s container ship capacity. Only 1.7 per cent of the world’s fleet is now laid up, according to Paris-based AXS-Alphaliner, a shipping consultancy.
If relative price is an indication of demand then the recession has indeed been an occasion for a rebalancing of global trade, between emerging countries, and also from Asia to rich markets. Based in price evolutions above, while intra Europe trade plummeted supply chains seem to have further adjusted towards Asia as we believed they would in January 2009. It remains to be seen if surging shipping rates on Asia routes will now slow this move.
While most have stopped the laying up of excess ships, nearly all are still running ships slowly, a step that both saves fuel and soaks up extra ship capacity. More ships are needed to provide each regular service.
The shortage of capacity means that, as lines carry more containers, space on ships is growing scarcer and lines can charge customers more. Two of the most important companies in container trade – Denmark’s AP Møller-Maersk and Dubai’s DP World – on Wednesday reported further evidence of the recovery in the trade in the boxes that carry the world’s manufactured goods.
The upturn, boosted by traffic of goods to and from emerging economies, has been so strong that analysts say that it has caught many by surprise. Maersk, owner of Maersk Line, much the world’s largest container carrier, said volumes on long-distance routes served by its ships had been up 13 per cent in the first half this year compared with last. Trans-pacific services between Asia and North America saw an 11 per cent increase, while services to and from Latin America saw an 18 per cent improvement.
DP World container movements at its ports were up 7 per cent in the first half over the same period last year. Its Australia and Americas division, which includes Latin America, saw volumes up 31 per cent on last year.
The two companies’ figures come in the same week that Singapore’s Neptune Orient Lines announced its volumes in the year to July 23 were 35 per cent up on the same period of 2009.
The recovery in trade has been so unexpectedly rapid that Maersk and several other lines have already had to apologise to customers for running out of containers after ordering too few to cope.
The increased volumes have pushed up rates per container shipped, boosting the profitability of lines. Maersk said rates per 40-foot container were 30 per cent higher for the first half this year than last year, while Neptune Orient Lines has seen a 15 per cent improvement in the year to July 23.
Maersk predicted net profits this year of more than $4bn, close to the record $4.69bn (€3.6bn) achieved in 2004. However, Nils Andersen, chief executive, said there was still room for further improvement in rates per container shipped, following last year’s slump. “The conditions are good – they’re not extraordinarily good. The conditions last year were extraordinarily bad,” he said.
Both Maersk and DP World warned that they still faced risks from a downturn in the global economy, while they had yet to see signs of one. “If conditions should deteriorate in the global economy, the container shipping companies will feel the effect,” Mr Andersen said.
This year’s recovery comes after the first year-on-year fall in trade volumes in 2009, when volumes fell more than 10 per cent. The fall sent rates per container shipped plummeting and left many container shipping lines needing bail-outs from investors or governments.
In: Market News