October 28 - Drewry's latest quarterly Container Forecaster emphasises that this year should have been much better for the industry. First half global demand growth was still running at an annual rate of percent and yet ocean carriers are losing money due

The report states that an excess of capacity on key routes, as well as poor discipline from carriers means that container shipping lines will not cover their cost of capital in 2011 and many will lose money once again.Drewry's new global demand forecast remains fairly positive, at just over 7 percent growth for this year and despite concern in the western economies, it still forecasts decent volumes in intra-Asia and on emerging trades with Latin America.

Drewry says it would like to know if the industry is unable to make money in a relatively strong year, then what will happen if/when demand seriously falls away on a global scale?

These are important times for carrier/shipper rate negotiations and the assumption now is clearly that the leading carriers are intent on protecting market share, rather than maintaining profitability. The resultant erosion of rates means that overcapacity remains a huge concern for carriers and a factor of instability for shippers as well as companies which finance or supply the carriers.

A weaker than anticipated peak season has meant that headhaul Asia to Europe and particularly transpacific volumes have faltered. With load factors of only 80-85 percent, carriers have not successfully pushed through their peak season surcharges and the severe overcapacity in these core east-west trades has been starkly revealed.

Weak conditions on the transpacific trade have led to the exit of some smaller players, but despite the recent intentions from operators to pull capacity from the trade this winter, headhaul spot freight rates remain at unprofitable levels for ocean carriers.

Perhaps it is "relatively" easy for the biggest players to sit back and believe that the smaller carriers will go bankrupt this time round or will re-trench to their regional markets and the industry will re-adjust itself. But a great deal of pain will be experienced even if this process does take place.

The leading operators on the Asia to North Europe trade have yet to make any plans to withdraw capacity this winter and as it stands, spot freight rates have little chance of increasing unless significant structural alterations are made. There is every chance that operators will lose significant money in 2012 unless the fundamental trade supply/demand dynamics are pulled into equilibrium. Vessel lay ups, which will be unwelcome news for independent shipowners, would be an obvious answer, but the amount is still minimal at the moment and it seems unlikely to reach the levels previously experienced in 2009/10.

Drewry says it sees no major improvement in the global supply/demand balance for the next five years and the two million teu that has been ordered since June last year, 80 percent of which are for ships of at least 8,000 teu, has already done the damage. Effective cascading is now becoming a problem for carriers as they struggle to deploy ships into smaller trades without inflicting damage.

Drewry's head of container research, Neil Dekker stated: "Herein lies the essential battle within the industry that will probably never go away. The biggest ocean carriers seek the economies of scale from ever larger super post-Panamax ships, but in doing so, the industry runs the severe risk of introducing too much capacity at the same time and ruining the already fragile supply/demand balance.

"The boom and bust cycle is now an annual occurrence, rather than something that happens every 4-5 years. We believe that three factors will determine how the industry will develop in the next 5-10 years. 1/ Carrier behaviour and commercial strategies, 2/ growth of the 10,000+ teu fleet and 3/ waning consumption in the US and Europe with the possible re-emergence of near-sourcing."