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Lack of new containers due to supply side constraints are generating mixed trends in the box segment, finds a report recently published by industry body BIMCO
The current spot price level from Shanghai to the US West coast indicates that tonnage supply is tight - freight rates have hiked 23% in 5 weeks, from $ 2,106 per FEU in mid-April to $2,587 per FEU by end-May. Meanwhile, the spot rates for freight bound for Europe have moved sideways. The front-haul container market with exports from Shanghai to Europe has moved sideways in the last 7 weeks. This proves that despite more tonnage getting reactivated from lay-ups, the market balance is somewhat maintained even though rates have come down 15% from the February/March highs. Volumes on the Far East to Europe trading lane are up 21.2% in first quarter of 2010, as compared to same period last year. This is positive; however it has to be put into perspective with the volume level of Q1-2008 of 3,325,509 TEU, which it still trails by 5.5%.  Meanwhile, volumes going in the other direction from Europe into the Far East firmed at 23% in Q1-2010, year-on-year. The crisis established a new 2:1 front-/backhaul ratio breaking away from the old-"normal" ratio of 3:1. Going forward, the ratio may be dragged towards the previous disequilibrium again but is likely not to go all the way due to higher levels of Asian imports and flagging European demand.A mini-survey from the Danske Bank, on the key trans-Pacific trade lane, indicates that carriers were getting significantly higher rates from the annual volume contracts talks with shippers held during May. The new rate level for contract volumes going to US West coast is indicated to be around $1,800-1,900 per FEU, up by almost 100%. Contract levels for US East coast is indicated to be around $ 2,800-2,900 per FEU, up by at least 50%. When looking at PMI data, the Asian export boom shows signs of peaking. Manufacturing exports recovered fairly swiftly and started to expand again during first quarter of 2009 and the rate of growth of Asia ex-Japan exports reached a new record by some margin in February 2010. Since then the growth rate in new export orders has decreased. Export growth in China has slowed sharply since the start of the year, with the increase in foreign sales easing for the third month running in May, to the weakest in ten months. A part of the slowdown may be linked to a peaking in the inventory cycle. The global trade surges that followed the recession have fuelled inventories of manufacturers globally, a growth that has now stopped. However the global manufacturing new-orders-to-inventory ratio is hovering around 1.2 and remains well above its long-term average of 1. Although manufacturing output and Asian exports may have peaked, they will fuel expansion in the second half of 2010. Demand-supply equation The container fleet has grown by 3.2% during the first five months of 2010, fuelled by 520,248 TEU of newbuildings, but offset by as much as demolished 95,429 TEUs. Demolition has stagnated at 1,767 TEU in 2010, with India and China taking 70% of the tonnage. BIMCO has new container tonnage in 2010 at 1.3 million TEU, offset by demolition of just 0.1 million TEU. This could make the fleet grow by 9% in 2010 as compared to 6.2% in 2009.
Still, the container segment remains the one to avoid new contracting, with just 5 vessels of a total capacity of 3,000 TEU ordered in 2010. With the average size of a newbuild vessel in 2010 at 4,773 TEU, cascading of tonnage will potentially mean squeezing out tonnage somewhere. That could potentially have serious consequences for smaller feeder vessels. In 2010 capacity grew 17%, than in 2009.  Leveraging ESS According to Alphaliner, extra slow steaming (ESS) has created employment for almost 100 ships with a total capacity of 554,000 TEU, till end-May.
It has grown from just 5 ships equal to 46,000 last year. Slower sailing speeds have become the norm on 80% Far East-Europe strings, and 50% on the trans-Pacific routes. This means ESS have absorbed the oversupply of container tonnage by 4.4% of the total fleet. The 4.1% (549,000 TEU) of idle fleet is an indicator of oversupply in the container shipping market. Now, the market dynamics depend on volumes picking up by at least the same pace as new tonnage delivered to the service strings, if present freight rates are to be maintained.
The idling container fleet has fallen to 549,000 TEU as of 24 May 2010, according to Alphaliner's fortnightly survey, down from a peak of 1,522,000 TEU at the beginning of December 2009. This reactivation of almost 1 million TEU of idled tonnage since last six months has come faster than expected, and may increase if rates come under pressure again. Buoyant charter rates By end-January, time charter rates began to climb despite cheap capacity at USD 5,000 per day. Increasing time charter rates have revived idle tonnage into active service. Thus time charter rates will indicate where the fundamental balance in the market is shifting to.
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