Lines left reeling by bounceback in box volumes

A HUGE surge in container volumes over the past three months has caught container lines by complete surprise and left them uncertain whether to reactivate idle tonnage even though their customers are screaming for extra space straightaway.
Maersk Line chief executive Eivind Kolding admitted this week that the industry had not been ready for the sudden sharp increase in demand that began in early December and continued right through to the start of the Chinese New Year holidays.
“We had no time to prepare, we did not get any signals that this was coming,” he said.
Initial figures suggest that total worldwide volumes are up by about 15%-20% on corresponding figures a year ago when the market was in sharp decline and trade overall contracted by 10%. Even so, it was “far too early to say the crisis is over”, Mr Kolding warned. With AP Moller-Maersk due to release its 2009 results tomorrow, Mr Kolding was unable to comment on Maersk Line’s financial prospects.
But assessing the industry-wide picture, he told Lloyd’s List that container shipping was heading back towards break-even.
“We are not there yet,” he said, but if lines achieve the rate increases they are seeking in the 2010-2011 transpacific eastbound contracts that come up for renewal on May 1 then the industry could move out of the red by the end of the year. That compares with global losses that are thought to have reached around $20bn in 2009.
“Certainly, 2010 will be much better than last year, probably something the industry will be satisfied with, but not anything to brag about,” he said,
Neptune Orient Lines, which announced a 63% leap in volumes in its latest six-week period compared with year earlier levels, concurred that ocean carriers had been caught offguard by the size of the cargo recovery that has pushed some spot rates in the Asia-Europe trades back up 2007 levels when conditions were still very strong.
The Singapore line, which acted fast to remove capacity at the start of the meltdown, now only has a handful of ships idle compared with more than two dozen a year ago, and has reactivated some services in the intra-Asia and transpacific trades.
“Everyone has been surprised by this big bounce,” NOL president and chief executive Ron Widdows said. “Who the heck projected that?”
But lines’ reluctance to celebrate reflects the fact that the cargo revival appears to reflect concerted wordwide inventory replenishment by many different industries in North America and Europe, but without any corresponding recovery in consumer demand.
In the US, for example, inbound volumes have risen 13% in recent weeks, whereas retail spending is only 1% higher. A similar pattern is apparent in Europe.
That has left container lines wondering whether this apparent recovery is sustainable, or if it will fizzle out once re-stocking is over.
The situation “remains fragile”, Mr Kolding acknowledged in the keynote address to the Journal of Commerce’s 10th Trans-Pacific Maritime Conference, with the still large amount of tonnage in lay-up adding to the delicate supply/demand balance that could easily tip back the wrong way if too much capacity is reactivated too quickly.
Shippers are furious at carriers’ refusals to bring more ships back into service at a time when cargo is being left on the quayside in Asia time after time.
“I have never seen shippers so angry,” said Electrolux vice-president for global freight and logistics services Bjorn Vang Jensen. “We are pissed off.”
Another prominent shipper, Pat Moffett of Audiovox Electronics, said that on one recent occasion he had 13 40 ft containers bumped off a ship.
But Mr Kolding said it took time to adjust shipping networks, while box lines are being ultra-cautious about pulling ships out of lay-up until they are certain that the cargo recovery looks sustainable.
“We will see how volumes pick up after the Chinese New Year,” he said.
But Maersk is more likely to deploy extra loaders in existing transpacific services than introduce new loops, Mr Kolding predicted.
Lloyds list