August 29 - Despite an increase in freight rates, global benchmarking and market intelligence platform for containerised ocean freight Xeneta, says the future remains uncertain in container shipping due to the looming increase in megaship capacity.
New alliances, structural change and positive economic trends have transformed the container shipping market over the past year, says Xeneta, driving growth and pushing business performance figures from deep red into black.
While a recovery of the container segment is well underway, "a staggering 78 new megaships are due to come online for the Asia-Europe trades over the next two years, pushing capacity up by over 23 percent," explains Xeneta ceo, Patrik Berglund.
Berglund adds: "Megaships make obvious sense in terms of economy of scale and optimising transport costs, but when you have this much of a capacity injection it requires a huge demand increase.
"Megaships of 18,000 teu need to command utilisation rates of at least 91 percent to achieve cost savings. Even in the high volume Asia-Europe trades that is difficult and may necessitate lower than average rates for some volume, which, inevitably, will hit overall rate development.
"Each of the key alliance partners is playing catch up with one another, trying to reap the megaship benefits. In doing so they're going to flood the market with new capacity and risk reversing current positive trends. This is a potential mega-problem in waiting."
The Baltic and International Maritime Council (BIMCO) has also suggested that while the freight rates are coming back from the abyss, the actual rise may be magnified beyond their actual performance.
The rates point to the industry leaving behind the 2015/2016 "low point" of the current crisis, but while some spot freight rates are up by more than 100 percent from last year's low levels, they may still be at a loss-making level.
An alternative indication of profitability, is the broad-scoped China Containerized Freight Index (CCFI), says BIMCO. By August 11, 2017 the CCFI composite was up to 856.5, compared with the all-time low of 632.36 in April 29, 2016.
According to BIMCO, it's not only freight rates which have risen this year. Charter rates also rose sharply in the first four months of 2017. In the dry bulk segment, capsize rates reached a breakeven level to become profitable, while overcapacity remains a challenge for other segments.
BIMCO reiterates the view that dry bulk market recovery will be slower than many would hope. This is because improved demand is always followed by reduced focus on handling the supply side challenges - deliveries, demolition and newbuild orders.
The reports present a mixed picture for the owners and operators of multipurpose and heavy lift ships, which have seen their cargo market increasingly targeted by operators of dry bulk, ro-ro and container ships over the last few years.
The increasing freight rates, while perhaps not as clear an indicator of profitability as hoped, will still be music to the ears of heavy lift and multipurpose shipping lines, as carriers are increasingly likely to focus on their core market, instead of chasing project cargo loads. But the potential of mega-capacity vessels flooding the market once more creates an uncertain future for freight rates, containers and the wider shipping industry.