Container Carriers Need "Deeper Capacity Cuts," Says Drewry

Drewry says "carriers will need to intensify their capacity management tactics in 2016" if there is to be hope that rates will rebound.

Drewry Shipping Consultants Limited (Drewry) says that container carriers will have to make "deeper capacity cuts" if 2016 is to see any rebound from the falling spot rates that the market has seen over the past year.

"What should have been acceptable ship utilisation figures last year didn't prevent spot rates from falling to historic lows," said Drewry, adding that "carriers will need to intensify their capacity management tactics in 2016 if they are to reverse the trend."

With forecast of minimal demand growth for 2016, Drewry says carriers will need to be more creative at hiding the 1.3 million TEU in newbuilds that are set for delivery in the year, most of which are scheduled for East-West trade routes.

Drewry says that, with consideration of seasonal volume peaks, carriers did a "reasonable job" of matching supply to demand on East-West trade routes in 2015, with Drewry data showing that ship utilisation remained within a 10 point spread between a low of 83 percent, during February and November, and a high of 93 percent in August.

The consultancy notes that tactics used by carriers to weather difficult market conditions in 2015 included slow-steaming, an increase in void sailings, suspending or merging services, employing ships on other trades to make room for bigger and newer vessels, as well as laying-up more assets as the year progressed.

"Despite carriers' best efforts to curb the supply-side growth, it wasn't enough and spot market freight rates plummeted to non-compensatory levels by the end of the year," said Drewry, noting that its East-West Freight Rate Index declined by 26 percent on average in 2015, while the Asia-Europe Westbound Rate Index dropped by 42 percent.

While some capacity will be removed through scrapping activity, Drewry says that some of the pressure can also be expected to be eased by a transfer of vessels from the East-West services to North-South trades, but notes that "the latter's ability to absorb ships is lessening."

"Carriers will need to intensify the cascade of ships, missed sailings and lay-ups in order to raise utilisation to levels that could propel rates to profitable levels," Drewry concluded.

In January, Ship & Bunker reported that Neil Dekker, director of container research for Drewry, said that low bunker rates have prevented the sector from reliving its performance in 2009, when 1.3 million TEU were removed from a considerably smaller fleet than exists today.