Won’t be able to push higher rates if they don’t fully decomission shi
Ocean carriers need to start fully decommissioning vessels if they want to succeed in pushing through rate hikes in the New Year, said a Macquarie Capital Securities analyst.
Alphaliner said there was less than 1 percent increase in idled vessels in mid-November, while the proportion of the total idled fleet was just 2.9 percent. Most of these vessels were ‘hot’ layups, meaning they still had a small crew on board and were ready to re-enter the market at short notice. A ‘cold’ layup involves dismissing the vessel’s crew and shutting down the ship’s electronics.
“We have recently spoken with many of the carriers in our coverage, and at this point none are planning cold layups, just warm layups,” said Janet Lewis, MCS’ regional head of industrials and shipping research. “All carriers fear loss of market share if they commit to cold layups.”
Layup overhead costs are significantly reduced by removing the crew, but machinery and electronic systems can degrade and reactivation can take weeks and usually involves a dry dock.
With trans-Pacific rates at their lowest level in 23 months and rates even worse on the Asia-Europe lane, Lewis said she was sceptical carriers will be able to raise post-holiday rates without removing much more capacity.
“We believe this is a battle for market share and there needs to be significant withdrawal of capacity – probably at least 15 percent – for it to begin to support rates,” Lewis said.
She said the carriers’ losses will be less severe than during the international trade slump in 2009, but lines will be forced to restructure, raise capital or exit the market if the financial bleeding continues.
“We believe we will only get a sense of the degree to which lay-ups are happening in February,” she said. “If we look at 2009, the first big jump in idling came in February.
There is little potential for the scrapping of container ships because most of the fleet was modern. It is for this reason she believes “the downturn for containership operators could take several years to right itself.”
Source: The Journal of Commerce
