Analyst Says Large Ships Threaten Smaller Carriers

Smaller vessel operators could be forced out of Asia-Europe container trade lanes as the deployment of ultra-large container ships puts more pressure on freight rates

and the bottom line, according to one Hong Kong-based analyst.
Janet Lewis, regional head of industrials and shipping research in Asia at Macquarie Capital Securities, said the influx of vessels of more than 10,000 20-foot equivalents onto Asia-Europe lanes was the prime cause of the rates collapse over the last nine months.
“Volumes have been relatively robust, so it would appear to be the fact that not enough capacity has been taken off to adjust for the arrival of the ULCSs,” she said.
Lewis warned some smaller lines could face financial difficulties because of the poor pricing outlook but said it was “too early to say whether the situation will reach a point where we see failures as a result of financial distress.”
“At the least we believe there will be a marginalization of smaller players who can’t compete on the Asia-Europe route. Indeed it could be in their financial interests to withdraw from what will inevitably be an unprofitable route for operators of smaller vessels.”
Lewis predicted most carriers would lose money on Asia-Europe trade in 2011 because the deployment of larger vessels was jeopardizing the traditional peak season recovery and could prevent carriers from imposing planned General Rate Increases on Asia-Europe lanes.
“That could spell second half losses for many operators. The next few weeks will be telling,” she said.
“I don't think we'll get a marked change in capacity until after the peak season. With the idle fleet very low, there is more likely to be further repositioning onto higher demand services like intra-Asia, or Asia-Middle East.
Source: The Journal of Commerce