Rough weather in 2013 too for container shipping lines

Container shipping lines will continue to face challenges in 2013 – given its over capacity, weak demand and completion pressures, constraining its profits, said a report by Bank of America – Merrill Lynch.

“While spot rates could temporarily move higher around the January 2013 demand mini-peak and temporary capacity management, we believe a sustained uptick in spot rates is unlikely in the next 12 months given industry-wide pressures,” observed Mr. Nathan Gee, research analyst, in the report.

In November, the rate hike of $500 per TEU in Asia Europe was largely unsuccessful with liners retaining only 30% of the proposed hikes and further rate erosion expected in coming weeks, the report said. The rate hikes were less successful on the Asia-Mediterranean, failing altogether due to limited capacity withdrawals and weak demand with rates down to $200/TEU relative to the proposed $500/TEU hikes, the report said.

Despite the tepid response to the rate hike, container liners have announced further rate hikes aiming for $550/TEU on Dec. 15 and a peak season surcharge of $350/TEU on Jan. 10, 2013.

 “We are skeptical of the liners succeeding with the Dec. 15 rate hikes given the failures of the Nov. 1 rate hikes and demand seasonally slowing MoM into December. But we are wary of the liners having more success around the Jan. 10 peak season surcharge by taking advantage of the 2013 mini-peak prior to Chinese New Year in January 2013 to drive rates temporarily higher,” Mr. Gee noted in his report.

Ongoing volatility for spot rates in the coming 12 months looks inevitable as the industry cycles between bouts of over and under capacity, he stated.

The liners have no appetite for the deep losses seen in 2011, meaning rates should be relatively well supported around cash breakeven levels $1,100/TEU on Asia Europe, the report added.

The bank has reiterated its underperform rates on eight Asian container shipping companies – which include China COSCO, China Shipping Container Line, Evergreen Marine, Hanjin Shipping Company, Neptune Orient Lines, Orient Overseas International, Wan Hai Lines and Yang Ming Marine.

This apart, the bank has also allotted underperform rating to three Japanese container liners such as Kawasaki Kisen, Mitsui O.S.K. and Nippon Yusen.

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