Analysis: Is container shipping really out of the woods?

THIS year head haul routes in the container shipping market have increased by 18 per cent and intra-Asia by 70 per cent with average freight rates in the first quarter rising 18 per cent to US$2,863 per FEU, according to a report from New York-based Gerson Lehman Group.

Maersk banked $639 million in the first quarter, overturning last year's $372 million loss, Gerson Lehman analysts also noted.

Citigroup analyst Ally Ma believes that the return to profitability for many carriers may mark the beginning of renewed capacity woes as they begin taking delivery of deferred new building orders placed prior to the global financial crisis, against a backdrop of weakening demand.

Ms Ma expects third quarter rate hikes may indicate that container earnings are peaking, given slowing US consumption, high retail inventory and Europe's financial troubles.

Non-operating owners continue to face tight bank credit. Danaos Shipping cancelled orders for three newbuildings of 6,500 TEU, which were to be built by Hanjin Heavy Industries and initially expected to be delivered in the first half of 2012.

"The temptation to buy speculatively container tonnage today has led to a rise in asset prices as each new deal brings new highs. Indicatively, Metrostar is said to have spent $180 million to buy five 10-year-old 3,500-TEU ships from German owner Claus-Peter Offen. This is double what the vessels might have fetched at the start of the year," it said.

"This is driven by the expectation that container rates will soon regain historic norms and present rates are closer to 50 per cent of this level leaving room for improvement. Yet this counter-cyclical investment could prove self defeating in dealing with the overcapacity should the recovery stall and we face a longer period of sluggish growth as opposed to the forecasts of politicians and pundits," it concluded.
(Source:www.schednet.com)