Container lines have chosen to maintain capacity to win market share rather than bite the bullet to force up freight rates
A LACK of discipline regarding capacity, along with a weak freight environment and rising bunker and charter rates have all contributed to the poor results delivered by container lines in the first quarter, according to Alphaliner.
“Carriers have continued to chase market share at the expense of freight rates,” Alphaliner said. “Thus, average capacity operated by the 13 largest shipping lines has increased by 9.1% so far this year.”
The world’s active containership fleet has increased by 7.7% from 19.9m teu in mid-May 2017 to 21.5m teu in mid-May 2018, Alphaliner said.
“During the same period, average CCFI freight rates have dropped by 7%, while bunker prices went up 47%.”
As a result, container carriers’ earnings tumbled in the first quarter of 2018 and the majority of shipping lines posted negative earnings for the start of the year.
“While several carriers say they still expect to meet their financial targets for the full year, the chances for a substantial earnings recovery in the coming quarters are diminishing rapidly,” according to Alphaliner.
“The shipping lines’ failure to secure any meaningful rate increases for the transpacific annual service contracts on 1 May, will also limit the carriers’ ability to turn their results around for the rest of the year,” it added.
Carriers had chosen to risk weak rates rather than cut back on capacity, as line sought to chase market share at the expense of securing higher freight rates, Alphaliner said.
“The aggressive capacity additions are expected to continue through the summer, with a raft of newbuildings due to come on stream,” Alphaliner said. “Charter rates will maintain their upward path on the back of strong vessel demand.”